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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 despite adverse market conditions.
In addition to this, the legalization of sports betting outside Nevada 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.
But it is not prudent to think that the industry has no hurdles to combat. An ongoing trade war between Washington and Beijing is continuously hurting casino stocks. Moreover, increased hotel openings and promotional activities made Las Vegas and Macao markets highly competitive. Thus, excess supply, especially in the Macao market, is a challenge for individual casino providers. Also, the industry is infested with high debt levels.
Amid such a backdrop, leading casino companies like Wynn Resorts WYNN, Penn National Gaming, Inc. PENN, Las Vegas Sands Corp. LVS and MGM Resorts International MGM 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. The companies currently carry a Zacks Rank #3 (Hold) and have respective market capitalization of $45.8 billion and $14.9 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 2019, Las Vegas Sands’ earnings are expected to grow 9%. Moreover, it is expected to witness year-over-year sales growth of 2.2% in 2019. MGM Resorts’ 2019 earnings are likely to decline 2% while sales are likely to improve 10.9%.
In the past year, Las Vegas Sands’ shares have declined 21.9% while MGM Resorts’ shares lost 5.4%. Meanwhile, the industry recorded collective decline of 21.2%.
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 10.14 while that of Las Vegas Sands is 10.33. With the industry average being 12.22x, MGM Resorts has an edge over Las Vegas Sands.