Casinos have seen their stocks drop as they have been significantly impacted by the global macroeconomic slowdown as consumers have less discretionary income to spend on trips to casinos. However, the economy is now strengthening and consequently the consumer. As consumers' incomes grow, they will begin to start seeing their discretionary income come back that they will be willing to spend at a casino. Since casinos' economic well-being is highly tied to the economy, a continued pickup in economic conditions should have very positive effects on the financial results of casinos. Here are three casino stocks that should stand to benefit as incomes continue on their way back to pre-credit crisis levels.
MGM Resorts International (MGM) is one of the world's leading global hospitality companies, operating a peerless portfolio of destination resort brands, including Bellagio, MGM Grand, Mandalay Bay and The Mirage. In addition to its 51% interest in MGM China Holdings Limited, which owns the MGM Macau resort and casino, the Company has significant holdings in gaming, hospitality and entertainment, owns and operates 15 properties located in Nevada, Mississippi and Michigan, and has 50% investments in three other properties in Nevada and Illinois. One of those investments is CityCenter, an unprecedented urban resort destination on the Las Vegas Strip featuring its centerpiece ARIA Resort & Casino.
Management saddled the company with too much debt and that consequently played a role in the stock's performance. After trading for nearly $100 a share in the fall of 2007, the stock lost nearly all of its value, falling to less than $2 a share in 2009. Since then, it has recovered somewhat and is now trading at about $14 a share. Any pickup in casino activity will be quite noticeable for MGM's shareholders as the leverage will amplify that impact. MGM might be one of the best risk/reward stocks out there.
Las Vegas Sands (LVS) is a leading global developer of destination properties (integrated resorts) that feature premium accommodations, world-class gaming and entertainment, convention and exhibition facilities, celebrity chef restaurants, and many other amenities. The Venetian and The Palazzo, Five-Diamond luxury resorts on the Las Vegas Strip, and Sands Bethlehem in Eastern Pennsylvania are the company's properties in the United States. In Singapore, the iconic Marina Bay Sands is the most recent addition to the company's portfolio. Through its majority-owned subsidiary Sands China, the company also owns a collection of properties in Macau, including The Venetian Macao, Four Seasons Hotel Macao, and Sands Cotai Central, a 13.7 million square foot 6,400-room complex opening in early 2012 at the company's Cotai Strip development. The company also owns the Sands Macao on the Macau peninsula.
LVS is the behemoth out of the 4 stocks with a market cap approaching $45 billion. After reaching $140 a share in 2007, the stock tumbled to less than $2 a share in the depths of the recession. However, the debt load for LVS isn't as bad as MGM and it is sitting on a debt to EBITDA ratio of just under 2. With its stronger financial position and better operations, the stock has made a swift recovery and is now trading at just below the midpoint from its ascent to $140 to fall below $2 a share. LVS is profitable and is expected to post EPS of $2.58 for FY12 for a forward P/E of 23 on revenue growth of 24%.
Empire Resorts (NYNY) is a gaming and entertainment company. Its subsidiary, Monticello Raceway Management, owns and operates the Monticello Casino & Raceway in Monticello, NY. The facility includes over 1,000 slot machines and electronic table games, as well as dining and live entertainment. Monticello Casino & Raceway has been conducting harness racing since 1958 and the facility opened its doors to slot machine gaming in July 2004 and has already hosted over 5.5 million visitors.
Empire Resorts also took a beating in the credit crisis, falling from over $35 a share to below $2 a share and after a brief recovery to $10 a share in 2009, the stock is back in the $2 level. However, it seems like the company is getting healthier. After posting negative EBITDAs in 2007, 2008, and 2009, NYNY posted a positive EBITDA of $0.6 million in 2010 and $2.6 million in 2011. The valuation is still rich with an EV/EBITDA ratio of over 29, but that could change in a hurry if its properties get some traction.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.