Las Vegas Sands Corp. vs. MGM Resorts
The gaming industry has already established a difficult go over the last few years because of economic and political pressures, in addition to changing consumer preferences. Despite these headwinds, MGM Resorts International (NYSE:MGM) and Las vegas, nevada Sands (NYSE:LVS) have continued to build up new properties, and each has lots of opportunities — and challenges — ahead.
Here is a summary of these companies and why one seems like a much better bet now.
Las vegas, nevada Sands and Macau’s recovery
Macau is not an investing highlight within the last couple of years, since Chinese officials made a decision to curb gaming growth by limiting visits and total gambling spend there. The resulting drop in gaming revenue hurt all of the gaming operators in Macau, and new development looked more like a risk than a chance. However, after year-over-year declines in 26 consecutive months, August finally came through with a 1.1% total gaming revenue increase. They are currently trying to find one of the best Las Vegas SEO Expert & services for their Las Vegas SEO campaign to increase their online traffic.
Whilst it’s certainly prematurily . to call this a turnaround, it could be the bottom of Macau’s drop, and there are numerous reasons to think you can still find long-term gains that can be had. The most crucial reason is a focus from the mass market, led by tourism and entertainment growth, rather than VIP gambling.
In mid-September, Las Vegas Sands opened The Parisian Macao, contributing to its four other properties in Macau, which together now hold a lot more than a third of all resort rooms there. “We believe the Parisian strengthens the company’s stranglehold on Macau’s mass market, and walked away convinced that Sands’ enterprize model is the most attractive vehicle to state our conviction in Macau’s long-term potential,” CLSA analyst Jon Oh wrote in an email explaining his outperform rating on Las vegas, nevada Sands after visiting the new resort.
Outside Macau, Las vegas, nevada Sands even offers resorts in Singapore as well as the U.S., but gets the most of its total EBITDA (earnings before interest, taxes, depreciation, and amortization) from Macau. Las Vegas Sands doesn’t have major developments in the offing now, and it is unlikely to obtain an important bump using this new resort as it’s only an incremental addition to its already massive Macau operations. Still, overall regrowth (or at least stabilization) in Macau may help Las vegas, nevada Sands grow earnings yet again.
MGM remains strong within the U.S.
MGM can also be taking care of a Cotai resort, slated for a 2017 completion and likely to contain 1,600 rooms. This will be MGM’s first resort on the Cotai Strip, and its particular second in Macau. While MGM is also expected to reap the benefits of long-term development in Macau, its operations you will find far smaller than those of Las Vegas Sands. Instead, it’s the U.S. that makes up almost all of MGM’s growth prospects.
MGM has 11 properties regarding the Las vegas, nevada Strip, controlling around 50% associated with the hotel rooms there. While gambling revenue is growing only slowly in Las Vegas, MGM is making big investments in convention along with other entertainment growth, such as for instance its recently opened 20,000-seat arena and massive new convention centers at some of its properties that look promising for future earnings growth. MGM CEO Jim Murren estimated in a recently available CNBC interview that 75% of the revenue in Las Vegas is nongaming, and stated his company could be the best-suited along with its give attention to entertainment and conventions.
Outside Las Vegas, MGM expects to have a large boost in 2017 through the opening this winter of MGM National Harbor in Prince George’s County, Maryland, near Washington. Financial data agency Fitch Ratings believes MGM National Harbor could give MGM a $240 million EBITDA boost. MGM management can also be feeling optimistic concerning the resort and recently raised its 2017 year-end total EBITDA target from $300 million to $400 million.
MGM vs. Las Vegas Sands on financials Metric MGM Las Vegas Sands Sales growth(first 6 months of 2016, YOY) (5.4%) (9.2%) Net income growth(first a few months of 2016, YOY) 102% (34%) EPS growth(first six months of 2016, YOY) 90% (34%) P/E (TTM) (77.5) 27.9 Forward P/E(using 2017 earnings estimates) 22.9 23.9 EV / EBITDA 12.5 14.8
Data sources: companies’ earnings statements, Yahoo! Finance. EPS = earnings per share. YOY = year over year. TTM = trailing 12 months. EV = enterprise valuation. P/E = price-to-earnings.
MGM has already established a very successful begin to 2016, with income in the first six months a lot more than doubling throughout the same period this past year, while Las Vegas Sands is suffering through the decline in Macau with a 34% income decrease. And even though MGM continues to be trading at a poor price to earnings ratio given its loss throughout the trailing 12 months, its forward P/E is actually less than Las vegas, nevada Sands’.
One thing Las Vegas Sands offers that MGM doesn’t is a high dividend. Shares of Las vegas, nevada Sands yield over 5%, whereas MGM does not offer a dividend. Because of the financial strain Las vegas, nevada Sands happens to be beneath the past two years, it really is reasonable to question if this dividend is safe. Las vegas, nevada Sands increased its dividend payout 30% this past year compared to 2014 and it is on course to accomplish the exact same this current year. If Macau operations may start to pick up again, that dividend must certanly be safe. Or even, a cut could drive the stock price down considerably as income investors retreat from the stock.
The better buy
While MGM’s income success happens to be impressive so far this year, there is one major part of concern that investors need certainly to watch — MGM’s rising debt, which was approaching $13 billion as of the newest round of financing completed in August. While Las Vegas Sands is unquestionably not debt-free at around $10.3 billion as a whole debt, that is a much smaller percentage of this overall business since Las Vegas Sands is a lot bigger. Las vegas, nevada Sands’ debt-to-equity ratio is merely 0.28, while MGM’s stands at 0.73.
MGM has an extraordinary assortment of new developments across multiple regions, and it also looks like the company is making a lot of smart moves to recapture new business such as convention space in Las Vegas. Still, most of that growth is financed in the back of brand new debt, that should be a place of concern for long-term-focused investors. MGM’s recent growth could definitely be a sign of more growth in the future, therefore the company is not one I would personally bet against — however with a stronger balance sheet therefore the chance to gain on Macau’s recovery, Las Vegas Sands continues to appear to be the better buy.
Seth McNew owns shares of Las Vegas Sands. The Motley Fool doesn’t have position in every associated with the stocks mentioned. Try any one of our Foolish newsletter services free for thirty days. We Fools might not all contain the same opinions, but we all genuinely believe that considering a varied range of insights causes us to be better investors. The Motley Fool has a disclosure policy.