Macau's gaming stocks may be synonymous with outsize resorts, profits and growth, but Barron's says it'll soon be more like overbuilding, overvaluation and slowdowns. Las Vegas Sands shares have soared 173% since 2004; Wynn Resorts rose 140%; and smaller Macau player MGM Mirage is up 127% over the same period. Macau casino tables have quadrupled to 4,622 since 2004, while hotel rooms multiplied 1100% to 8901. Macau's gaming revenues are growing at a 50% y/y rate, compared to Vegas' 3% rate. Still, will China's exploding middle class fill the 10,000 gaming tables and 31,017 hotel rooms Deutsche Bank expects by 2010? Demand might keep pace, but competition will pressure profits. Sands' dismal Q3 earnings and Wynn's merely good Q3 numbers sliced their shares by 22% and 25% respectively, but Barron's warns it's not a buying opportunity. Enterprise values are still 22 (Wynn) and 34 (Sands) times their 2008 Ebitda, compared to Harrah's Entertainment's LBO at 9.9 times enterprise value. MGM trades at a bubbly 31 times 2008 EPS, Wynn at 40 and Sands at 48. Melco PBL Entertainment's Macau-centric business trades at 164 times 2008 EPS. Cash flow growth can't possibly match those multiples, and what happens if the U.S. slows down? Barron's thinks its time to cash in your chips.
Commentary: MGM Will Roar While Las Vegas Sands and Wynn Whine • China Couldn't Rescue Las Vegas Sands from Getting Croxed • Goldman Sachs Bets On Wynn, MGM and Las Vegas Sands • Casino Stocks Dive on Macau Growth Concerns: Buy Here or Jump Ship?
Stocks to watch: LVS, WYNN, MGM, HET, MPEL
ETFs: First Trust Ex Tech (QQXT), First Trust Nasdaq-1 (QQEW)
Conference call transcripts: Wynn Resorts Q2 2007
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