Las Vegas Craps Out: Recent Results From Major Gaming Companies

Includes: BYD, CZR, LVS, MGM, WYNN
by: Yale Bock

There has been much conjecture about the stocks of Las Vegas-based gaming companies. The following is a summary of the operating results from the most recent quarter of the largest casino's, their respective valuations, and how they compare to one another.

Most Recent Operating Results of Large Casino Operators
Las Vegas Sands (NYSE:LVS) Wynn Resorts (NASDAQ:WYNN) MGM International (NYSE:MGM) Caesar's Entertainment (NASDAQ:CZR) Boyd Gaming (NYSE:BYD)
Revenues 2.58 Billion 1.253 Billion 2.323 Billion 2.165 Billion 615 Million
Growth Rate (yr over yr) 10.1% -8.3% 29% .2% 7%
Adjusted EBITDA 845 Million 384.1 Million 501.5 Million 512.4 Million 113.8 Million
Growth Rate (yr over yr) -6.39% -14.8% +37% -2.6% -3.9%
Net Income 240.6 Million 138.1 Million -145.5 Million -241.7 Million 1 Million
EPS .29 1.37 -.30 -1.93 .01

(Please note- the MGM net loss was affected by an impairment charge of $85 million on a joint venture, a property transaction charge, and a charge against an allowance for deferred tax assets, along with a net tax benefit in Macau. EPS estimates for normal operations without the charges would be a -.12 per share.)

For investors information, it is probably best to use Adjusted Ebitda as a good measure for operating results as net income is easily affected by special charges, write downs, asset sales, non operating segments, and minority interests, among others.

Valuation Statistics of the Major Gaming Companies
Las Vegas Sands Wynn Resorts MGM International Caesar's Entertainment Boyd Gaming
Market Capitalization 34.59 Billion 10.36 Billion

4.95 Billion

931.69 Million 527.32 Million
Enterprise Value 40.91 Billion 13.81 Billion 16.41 Billion 20.29 Billion 3.92 Billion
Trailing P/E Ratio 24.35 20.35 N/A N/A 56.39
Forward P/E Ratio 15.60 16.75 N/A N/A 29.00
EV/EBITDA Ratio 12.03 9.48 9.06 10.60 8.52
Net Profit Margin 15.53 11.45 -6.83 -10.16 .39
Operating Margin 24.74 20.44 9.70 11.22 10.75
Shares Outstanding 821.11 Million 99.78 Million 488.94 Million 125.31 Million 86.59 Million
Free Float 350.6 Million 63.33 Million 333.62 Million 24.98 Million 54.88 Million
Return On Assets 7.21% 9.12% 1.96% 2.20% 2.81%
Return On Equity 19.38% 28.3% -4.11% -70% .07%
Quarterly Dividend Per Share .25 .50 No Dividend No Dividend No Dividend
Annual Dividend Yield 2.4% 1.90% No Dividend No Dividend No Dividend

(All Statistics are provided by Yahoo Finance from 8/29/2012. Also, Return on Equity for Wynn Resorts and Caesars Entertainment were calculated using the Dupont Formula, and not taken from Yahoo Finance)

In looking at the valuation of the different companies, I would look at the EV/EVITDA multiple as a key guide. You can see the multiples are fairly rich. If one takes into consideration the top line growth rates of the casino industry, the multiple an investor pays is pretty high relative to how much revenue growth has actually taken place in the last year.

It is important to note that Las Vegas Sands and Wynn generate 75-80% of their operating profits from Asia. Las Vegas Sands has a more diversified revenue base, as it includes both Macao and Singapore, where Wynn only has its operation in Macao. MGM, Caesar's, and Boyd have far more concentration of revenues in Las Vegas.

MGM and Boyd saw top line growth because of a new project and an acquisition, and Las Vegas Sands also had a new project come on line. All of the casinos have growth plans for the future, with Las Vegas Sands, Wynn, and MGM all eyeing Asia and other jurisdictions as a way to increase revenues and operating profits.

Wynn Resorts and Caesar's Entertainment I find interesting because of their lower float totals available to the public. Wynn has a much stronger balance sheet than Caesar's, which has a whopping total of nearly $20 billion of debt. Certainly, if business improves in Las Vegas, Caesar's and the MGM have the most leverage for better operating improvement. The key difference is the very low share count for Caesar's.

Las Vegas Sands has the largest business of all the gaming players, and is the most profitable from an operating performance and size perspective. The main concern for equity owners with the Las Vegas Sands is the large number of shares outstanding, many of which are owned by founder Sheldon Adelson.

The gaming sector is a high profile industry which many investors follow and are interested in. Las Vegas has recently seen a slowdown in activity and it is reflected in the recent results from the industry. I hope the article provides help to investors looking to compare the different possibilities in the industry. With investing, beauty is in the eye of the beholder. Finally, a good analogy to the current situation might be the twenty-one equivalent where you are holding a fifteen and the dealer has a "soft" eleven, essentially anything can happen but the odds are in favor of the house. Best of luck with your investments.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.