Melco Crown Entertainment Ltd (ADR) (MPEL), Las Vegas Sands Corp. (LVS), Wynn Resorts, Limited (WYNN): The Best Stock in Gaming

Page 1 of 2

I’m back again on a search for the best casino stock in the gaming industry. A lot has changed in the industry over the past year with explosive growth on Cotai in Macau, continued deterioration of regional gaming in the U.S., and a new construction boom that will drive the next generation of growth in the industry.

Over the past year, gaming stocks have had an incredible run, as you can see below. My top pick from a year ago, which is Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL), performed the best over the past year, driven by growth on Cotai.

LVS Total Return Price Chart

LVS Total Return Price data by YCharts

Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL) has definitely been a great performer financially, but a lot of the gains seen on the market are because of valuation multiple expansion. I’ll explain later why that will keep this from being my top stock this time around.

Multiples matter

I’ll be using an enterprise value/EBITDA multiple to put a value on these stocks. The enterprise value allows me to pull debt into the equation, and EBITDA is a great approximation of the cash flow casinos spit off from operations. Below, I’ve built a table with the net debt, market cap, and trailing 12-month EBITDA for each company.

Market Cap Net Debt EBITDA (ttm) EV/EBITDA
Las Vegas Sands Corp. (NYSE:LVS) $46.5 billion $7.0 billion $4.16 billion 12.9
Wynn Resorts, Limited (NASDAQ:WYNN) $13.9 billion $3.5 billion $1.68 billion 10.4
Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL) $14.6 billion -$300 million $1.08 billion 13.3
MGM Resorts International (NYSE:MGM) $8.4 billion $12.0 billion $2.06 billion 9.9
Caesars Entertainment Corp (NASDAQ:CZR) $2.3 billion $19.3 billion $1.89 billion 11.4

Source: Yahoo! Finance and company earnings releases.

Based strictly on the data above it looks like MGM Resorts is the least expensive and Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL) is most expensive. But we have to consider location, growth rates, and future expansion to paint the true picture of the industry.

The U.S., Macau, and Singapore

Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL), Las Vegas Sands Corp. (NYSE:LVS), and Wynn Resorts, Limited (NASDAQ:WYNN) all get a majority of their revenue from Macau, an area that’s still growing double digits per year. On the flip side, Caesars Entertainment Corp (NASDAQ:CZR) gets most of its revenue from regional gaming in the U.S., and the balance in Las Vegas. Regional gaming has struggled with increased competition, and nearly everyone is seeing falling revenue and profits.

MGM Resorts International (NYSE:MGM)

Everyone on this list except for Melco Crown has some exposure to Las Vegas, where conditions have slowly and steadily improved since the recession hit bottom. That’s where MGM Resorts International (NYSE:MGM) gets most of its revenue, with a 51% stake in its Macau subsidiary sprinkled in.

With these positions in mind, Macau exposure should be worth the most with Las Vegas second, and little value placed on U.S. regional gaming, where companies are losing money. That’s the framework of the lense I view companies through. Now let’s look at expansion.

Expansion in Asia

Every one of these companies has a resort coming on Cotai, except for Caesars Entertainment Corp (NASDAQ:CZR). Add to that a stake Melco Crown has in a Philippines resort, and there’s a fair amount of expansion coming to the industry. Most of the expansion on Macau won’t take place until 2016, but it’s still worth looking at when considering upside.

Let’s assume that each new Cotai resort generates $1 billion in EBITDA (probably low given existing resorts), and then adjust the valuation multiples. I’ve accounted for MGM’s 51% stake in its Macau subsidiary, and projected a total of $1 billion in new EBITDA for Melco Crown from its 60% ownership in Studio City and minority stake in The Philippines. I haven’t adjusted for the majority stake Las Vegas Sands Corp. (NYSE:LVS) and Wynn Resorts, Limited (NASDAQ:WYNN) have in Macau because I didn’t above.

Projected EBITDA Projected EV/EBITDA
Las Vegas Sands $5.2 billion 10.4
Wynn Resorts $2.7 billion 6.5
Melco Crown $2.1 billion 6.9
MGM Resorts $2.6 billion 7.9

You can see that a single casino added to Melco Crown and Wynn Resorts, Limited (NASDAQ:WYNN) makes a huge impact on valuation because they only have two major casinos, so adding one more changes their respective values a lot. Adding one more to Las Vegas Sands Corp. (NYSE:LVS) doesn’t have the same impact.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

The 10 Longest Wars of All Time

The 13 Worst Looking Foods that Taste Great

The 6 Most Gruesome Injuries Suffered During a Sports Match

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!