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MGM Versus LVS: Which Casino Stock is Worth the Gamble Now?
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Operators of integrated casino, hotel and entertainment resorts seldom fail to build businesses as demand for casino services is relatively inelastic. This is because casinos attract a particular set of consumers whose preferences remain more or less similar in adverse market conditions.
In addition to this, the legalization of sports betting outside Nevada has widened the scope for casino operators since illegal betting is valued at billions of dollars annually in the United States. Further, casino operators are collaborating with the hospitality sector, setting up luxury hotels and generating high-margin non-gaming revenues. Subsequently, backed by discretionary spending and a stable demand for casino services, the industry is poised to witness long-term growth.
But the industry has its share of hurdles to overcome. Slowdown in Macau gaming revenues continues to be a concern for the industry in the short run. Moreover, a trade war between Beijing and Washington is hurting casino operators in Macau. Though gaming revenues from Macau increased for the 27th consecutive month in October, the growth rate has softened since the second quarter. Additionally, waning property price in China impacted the high-end VIP segment.
Against such a backdrop, leading casino companies like Wynn Resorts (WYNN - Free Report) , Penn National Gaming, Inc. (PENN - Free Report) , Las Vegas Sands Corp. (LVS - Free Report) and MGM Resorts International (MGM - Free Report) are continuously devising strategies to drive revenues and profits. In response to a rapidly evolving and dynamic market, Las Vegas Sands and MGM Resorts are capitalizing on the significant profit associated with the business. Both the companies carry a Zacks Rank #3 (Hold) and have respective market capitalization of $40.4 billion and $13.6 billion. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Let us find out which stock is set to serve better returns to investors.
Price Performance and Earnings & Revenue Estimates
Arguably, earnings growth is of the utmost importance for determining a stock’s potential as surging profit levels indicate solid prospects (and stock price gains). For 2018, Las Vegas Sands’ earnings are expected to grow 10.9%. Moreover, its 2018 year-over-year sales growth is projected to be 6.7%. MGM Resorts’ 2018 earnings and sales are likely to improve 5.9% and 8.3%, respectively.
MGM Resorts’ shares have lost 21.1% in the past year while Las Vegas Sands’ shares declined 20.8%. Meanwhile, the industry recorded collective decline of 30.7%.
Valuation
Since casino stocks are debt-laden, it makes sense to value those based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio. This is because the valuation metric takes into account not just its equity but also the level of debt on a company’s balance sheet.
For capital-intensive companies, the EV/EBITDA is a better valuation metric because it is unaffected by changing capital structures and ignores effects of non-cash expenses on a company’s value. The trailing 12-month EV/EBITDA ratio of MGM Resorts is 26.82 while that of Las Vegas Sands is 14.06. With the industry average being 19.82x, Las Vegas Sands has an edge over MGM Resorts.
Debt Ratio
Since the sector has high financial leverage, debt-to-asset ratio comes into the picture. Both the companies' excessive reliance on debt financing is a concern. As of Sep 30, 2018, cash and cash equivalents of MGM Resorts were $1.3 billion compared with a much higher long-term debt of $14.7 billion. For Las Vegas Sands, unrestricted cash balance was $4.8 billion as of Sep 30, 2018. However, total debt outstanding — including the current portion, and net of deferred financing costs and original issue discount — was as high as $12 billion.
By looking at debt-to-asset ratio, we can have a sense of a company’s ability to meet its long-term debt. Leisure stocks should ideally have lower debt ratios, implying higher proportion of the company’s assets over the long term. Las Vegas Sands’ debt ratio is 51.3 compared with the industry’s 55.8 and MGM Resorts’ 48.9.
Return on Equity & Net Margin
Las Vegas Sands delivered a return on equity (ROE) of 34.2% in the trailing 12 months compared with 4.5% growth recorded by the industry. MGM Resorts’ ROE is 4.5%. This indicates that Las Vegas Sands reinvests more efficiently than MGM Resorts.
Traditionally, gross margin for the hospitality companies is comparatively higher as majority of expenses come from the cost of operations. However, the sector’s profits are not very high, which is evident from the net profit margin or net margin. The industry’s trailing 12-month net margin is 3.2% while that of Las Vegas Sands and MGM Resorts is 27.7% and 16.8%, respectively.
Bottom Line
While Las Vegas Sands’ projected earnings and margins are more promising than MGM Resorts’, the latter’s debt ratio is encouraging. However, Las Vegas Sands surpasses MGM Resorts in terms of valuation, ROE and share price movement. Please take a look at the following table to compare the two gaming giants.
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MGM Versus LVS: Which Casino Stock is Worth the Gamble Now?
Operators of integrated casino, hotel and entertainment resorts seldom fail to build businesses as demand for casino services is relatively inelastic. This is because casinos attract a particular set of consumers whose preferences remain more or less similar in adverse market conditions.
In addition to this, the legalization of sports betting outside Nevada has widened the scope for casino operators since illegal betting is valued at billions of dollars annually in the United States. Further, casino operators are collaborating with the hospitality sector, setting up luxury hotels and generating high-margin non-gaming revenues. Subsequently, backed by discretionary spending and a stable demand for casino services, the industry is poised to witness long-term growth.
But the industry has its share of hurdles to overcome. Slowdown in Macau gaming revenues continues to be a concern for the industry in the short run. Moreover, a trade war between Beijing and Washington is hurting casino operators in Macau. Though gaming revenues from Macau increased for the 27th consecutive month in October, the growth rate has softened since the second quarter. Additionally, waning property price in China impacted the high-end VIP segment.
Against such a backdrop, leading casino companies like Wynn Resorts (WYNN - Free Report) , Penn National Gaming, Inc. (PENN - Free Report) , Las Vegas Sands Corp. (LVS - Free Report) and MGM Resorts International (MGM - Free Report) are continuously devising strategies to drive revenues and profits. In response to a rapidly evolving and dynamic market, Las Vegas Sands and MGM Resorts are capitalizing on the significant profit associated with the business. Both the companies carry a Zacks Rank #3 (Hold) and have respective market capitalization of $40.4 billion and $13.6 billion. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Let us find out which stock is set to serve better returns to investors.
Price Performance and Earnings & Revenue Estimates
Arguably, earnings growth is of the utmost importance for determining a stock’s potential as surging profit levels indicate solid prospects (and stock price gains). For 2018, Las Vegas Sands’ earnings are expected to grow 10.9%. Moreover, its 2018 year-over-year sales growth is projected to be 6.7%. MGM Resorts’ 2018 earnings and sales are likely to improve 5.9% and 8.3%, respectively.
MGM Resorts’ shares have lost 21.1% in the past year while Las Vegas Sands’ shares declined 20.8%. Meanwhile, the industry recorded collective decline of 30.7%.
Valuation
Since casino stocks are debt-laden, it makes sense to value those based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio. This is because the valuation metric takes into account not just its equity but also the level of debt on a company’s balance sheet.
For capital-intensive companies, the EV/EBITDA is a better valuation metric because it is unaffected by changing capital structures and ignores effects of non-cash expenses on a company’s value. The trailing 12-month EV/EBITDA ratio of MGM Resorts is 26.82 while that of Las Vegas Sands is 14.06. With the industry average being 19.82x, Las Vegas Sands has an edge over MGM Resorts.
Debt Ratio
Since the sector has high financial leverage, debt-to-asset ratio comes into the picture. Both the companies' excessive reliance on debt financing is a concern. As of Sep 30, 2018, cash and cash equivalents of MGM Resorts were $1.3 billion compared with a much higher long-term debt of $14.7 billion. For Las Vegas Sands, unrestricted cash balance was $4.8 billion as of Sep 30, 2018. However, total debt outstanding — including the current portion, and net of deferred financing costs and original issue discount — was as high as $12 billion.
By looking at debt-to-asset ratio, we can have a sense of a company’s ability to meet its long-term debt. Leisure stocks should ideally have lower debt ratios, implying higher proportion of the company’s assets over the long term. Las Vegas Sands’ debt ratio is 51.3 compared with the industry’s 55.8 and MGM Resorts’ 48.9.
Return on Equity & Net Margin
Las Vegas Sands delivered a return on equity (ROE) of 34.2% in the trailing 12 months compared with 4.5% growth recorded by the industry. MGM Resorts’ ROE is 4.5%. This indicates that Las Vegas Sands reinvests more efficiently than MGM Resorts.
Traditionally, gross margin for the hospitality companies is comparatively higher as majority of expenses come from the cost of operations. However, the sector’s profits are not very high, which is evident from the net profit margin or net margin. The industry’s trailing 12-month net margin is 3.2% while that of Las Vegas Sands and MGM Resorts is 27.7% and 16.8%, respectively.
Bottom Line
While Las Vegas Sands’ projected earnings and margins are more promising than MGM Resorts’, the latter’s debt ratio is encouraging. However, Las Vegas Sands surpasses MGM Resorts in terms of valuation, ROE and share price movement. Please take a look at the following table to compare the two gaming giants.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Click for details >>