Diversification Lifts Las Vegas Sands Over Wynn

With the doldrums looming over gambling mecca Macau, two casino powerhouses reported earnings this past week. One of them managed to squeeze out EPS growth, while the other did a massive face-plant.

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The former is Las Vegas Sands Corp. (NYSE: LVS). The latter is Wynn Resorts Ltd. (NASDAQ: WYNN). The difference in the companies is that Las Vegas Sands operates more properties over a broader geographical base, while Wynn is pretty much limited to Vegas and Macau.

First, we’ll examine the casino stocks’ numbers in the aggregate, then drill down to see exactly how this difference played out in respective results.

Wynn Resorts is the simpler story.  Its fourth-quarter revenue not only fell by 26% year over year to $1.14 billion, but missed estimates of $1.21 billion. Revenue got clobbered in Macau, down 32%, while Vegas fell 6%, the same as Las Vegas Sands.

Net income for Wynn Resorts fell to $109 million from $231 million last year, a decline of 53%. Although adjusted property EBITDA fell 29% from last year to $352 million, at least Wynn Resorts stock managed to stir up that cash flow at all.

The slump was due to declines in table revenue and the high-rollers, who are the targets of China’s corruption crackdown. In the case of Wynn Resorts, table revenue was down 24% and the high-roller gamblers spent 17% less.

There was one more piece of bad news. Wynn Resorts had hoped to open its new Cotai casino early next year; now, that’s going to be delayed about six months. The good news is that Wynn Resorts can weather this storm, with $2.4 billion in cash on hand, and low-cost debt of $7.3 billion.

Now, let’s turn to Las Vegas Sands.

Las Vegas Sands stock’s Q4 earnings of $0.92 cents beat the $0.81 analyst estimate, and was up 28% year over year. Margins were stronger and expenses fell 13%. Adjusted operational cash flow rose 11% to $1.35 billion.

Las Vegas Sands’ revenue across the board came in light compared to last year, at $3.42 billion, down 6%. The culprit was Macau.

Revenues at the Four Seasons there did rise 2.4% but this was just luck, because the high roller revenue came in 36% below last year’s number.

The Sands Macau’s revenues got hammered with an 18% year over year decline, while property cash flow fell 12%, and high roller revenues fell an 43%.

It was depressing at the Venetian, where revenue fell 23% thanks to high rollers spending 40% less. That really hurt property EBITDA, which was down 26%.

So how did Las Vegas Sands stock manage to boost EPS? It’s the geographical diversification I mentioned.

In Singapore, revenue rose 27.1% year over year to $838.6 million and adjusted property EBITDA was $518.5 million – which DOUBLED over last year. This came in big despite the fact that the high rollers gambled a lot less, down 27%.

In Pennsylvania, the Sands Bethlehem saw a 7.7% increase in revenue, and property cash flow increased 20%.

So do you buy, sell or hold these big players? I want to say “buy,” but the truth is that December’s numbers from Macau were awful. I think that’s going to remain the case for quite some time. Neither company is in trouble financially. The balance sheets are strong and they will do just fine. It’s just a case of when to buy, and which one to buy.

LVS stock has an EV-EBITDA ratio of 9.85 and trades at a P/E of 16. It has $3.5 billion in cash and over $9 billion in debt. It’s about 35% off its high.

WYNN stock trades at 22x FY15 estimates, although that P/E will contract by the time the market opens on Wednesday. It has an EV-EBITDA ratio of 10.88. It’s almost 40% off its high.

I think you wait it out and then buy Las Vegas Sands. The diversification is what protects you and its power is obvious given this quarter’s results.

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Published by Wyatt Investment Research at