Buying stock has similarities with gambling. Think about it, chance and luck are diminished with more information. Also, random occurrences may give way to important information. Here there are a few pointers about three companies involved in the resort and casino business: Las Vegas Sands Corp. (NYSE:LVS), Wynn Resorts, Limited (NASDAQ:WYNN), and Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL).
Viva Macau! Viva GDP!
Regarding gambling, the first thing that typically comes to mind is Las Vegas. But, investors must think Macau (China) when talking about Las Vegas Sands Corp. (NYSE:LVS). China has experienced unprecedented growth, aiding the company to revert a negative revenue and free cash trend. Additionally, the firm is said to hold a 20% and 50% share of the Chinese and Singaporean gambling market, respectively.
Sands created for itself an economic moat in Macau, holding one of six gambling licenses given out by Chinese authorities. Additionally, in Singapore, the firm holds one of two gambling licenses, and will operate in a competition-free market until 2018. With current market positioning and circulating rumors about gambling being legalized by other Asian countries, management will find new opportunities to replicate successful past experiences.
Since 2007, Las Vegas Sands Corp. (NYSE:LVS) has constructed three out of the seven casinos the firm operates in Asia. There are further plans to keep investing on capital in Asia, Europe, and the U.S. Analysts blame increasing debt for the halt of the Las Vegas and Madrid project, but GDP slowdown in Asia and the U.S. economic recession have played a part, too. At the moment, the most urgent need is to sustain cash flow in order to scare off any debt phantasm.
Remarkably, Sands opened new facilities, expanded geographically, keeps a 20% operating margin, and rewards shareholders. The current share price is closer to its 52-week high, but remains fairly priced. Yield stands at 2.62% and the dividend at $0.35 (specials dividends have also been paid). It is recommended to buy the stock because it is the most diverse and best-positioned company in the industry.
Wynn Resorts, Limited (NASDAQ:WYNN) is another resort and casino conglomerate riding on Macau’s economic performance. Holding another of the six licenses provided by Chinese authorities, the company cemented its premier brand aimed for VIP customers. Additionally, the firm operates two casino and resorts in Las Vegas.
Almost three-quarters of Wynn Resorts, Limited (NASDAQ:WYNN)’s revenue is generated in the Asian market. The competition there is tighter than before, as new players come to the table. Hence, the firm’s revenue has seen a small reduction, and the market is expected to clog within five years. Before land plots are full, the firm has started work at the Cotai Strip.
Like Las Vegas Sands Corp. (NYSE:LVS), Wynn’s operations in the U.S. lagged behind, but in comparison, exposure is higher. However, the greatest threat is dependence on VIP customers, due to their volatility. On the management side, Steve Wynn has enough credentials, and the finances to show for it. Additionally, Wynn Resorts, Limited (NASDAQ:WYNN) has a history of rewarding shareholders.
Revenue, cash flow, and net-income have risen during the last five years. Debt has considerably risen over the last year, in line with new projects, but the firm has previously shown a capacity to pay debt obligations. Most importantly, operating margin is one of the highest in the industry at 21.1 points. Share price is close to its 52-week high, so it is recommended to hold until the price drops more, or VIP customers return for another season.