Wynn and Melco Crown are at least profitable, but as with Las Vegas Sands they look pricy with trailing earnings multiples of more than 25. Wynn’s earnings actually fell 42% last quarter compared to the fourth quarter of 2011, partly due to a small decrease in revenue but mostly due to narrower net margins. Again, even if the company hits Street targets for 2014 it would be trading at 18 times earnings at the current stock price, and so would need more improvements going forward and so we think that it’s a bit too speculative. Melco Crown is up 65% in the last year and currently carries trailing and forward P/Es of 31 and 19, respectively. It actually reported an increase in revenue in its most recent quarter compared to the same period in the previous year, but as with Las Vegas Sands net income was less responsive. In addition, Melco Crown’s focus on Macau leaves it less geographically diversified and more dependent on the macroeconomy, as shown by its beta of 2.6.
Casinos in generally don’t look like attractive investments right now. MGM and Caesars are, in the eyes of the sell-side, at least two years from breaking even and we’d be quite concerned about their leverage as well. The other three companies, including Las Vegas Sands, are valued at quite high levels relative to their historical earnings and yet have not been delivering much earnings growth- and that is with Las Vegas Sands having opened a new location, which should theoretically have boosted net income as well as net revenues. As a result we can’t recommend Las Vegas Sands or any of its peers from a value perspective.
Disclosure: I own no shares of any stocks mentioned in this article.