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
blog comments powered by Disqus
Insider Monkey Headlines
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

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Burger Kings: The 10 Most Expensive Burgers in the World

The 10 Most Ethnically Diverse Countries in the World

The 10 Most Exclusive Credit Cards in the World

The 10 Most Expensive Cruise Ships in the World

The 10 Fastest Supercomputers in the World

The 10 Best Countries for Doing Business 2015

6 Most Expensive Fruits In The World

10 Worst Airlines in the World

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!