2016 was a topsy-turvy year for casino stocks, as both Las Vegas Sands (NYSE: LVS) and Wynn Resorts (NASDAQ: WYNN) recovered from their worst levels of the year but still face plenty of uncertainty. The key Asian gaming market of Macau has apparently bottomed out, and anticipation of improving conditions helped spur share-price gains last year. Yet coming into 2017, Wynn and Sands will have to prove to investors that the rebound they're counting on seeing will actually happen. Some investors would prefer to figure out which stock is the smarter pick right now. Let's take a closer look at Las Vegas Sands and Wynn Resorts, using a number of metrics to decide which stock appears to be a better buy.
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Image source: Wynn Resorts.
Valuation and stock performance
Both Las Vegas Sands and Wynn Resorts have seen similar bounces compared to their worst levels of the past year. The 12-month performance of the two stocks is within a hair's breadth of each other, both showing a rise of about 30% since January 2016.
Looking at valuations, the key question is how much you trust forward projections of earnings. When you look only at reported trailing earnings, Las Vegas Sands looks much cheaper, sporting a trailing multiple of 26. That's far less than the reading of more than 40 times trailing earnings that Wynn's current share price suggests.
However, if you look at investor expectations for earnings in the near future, the gap almost disappears. Las Vegas Sands has a forward multiple of just over 20, whereas Wynn comes in at a bit below 21. Sands arguably has a small valuation edge, but it's likely to disappear if Wynn's earnings behave the way shareholders currently anticipate.
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From a dividend perspective, Las Vegas Sands also has a clear lead, with a dividend yield of 5.4%. That's far ahead of the 2.3% dividend yield that Wynn Resorts has currently.
Of equal concern to dividend investors is the fact that Wynn has made cuts to its dividend, whereas Sands has sustained its dividend payout over time. Wynn's decision to reduce its quarterly payout by two-thirds in 2015 came at a time when the company was aggressively expanding and didn't want to add unnecessary leverage to its balance sheet by sustaining dividends at previous levels. Some investors applauded the decision, even though it came at the expense of ample income, and many expected Sands to follow suit.
Sands has been resolute in sustaining its dividend. Yet one thing investors won't get in 2017 is the double-digit percentage annual growth they've gotten used to seeing. The company has already signaled its intent to boost its quarterly dividend by just $0.01 to $0.73 per share in the coming months. Nevertheless, even a small increase is better than nothing, and it's enough to cement Sands' superiority with dividends.
Growth prospects and risks
Looking at growth, the key for both Las Vegas Sands and Wynn Resorts is whether Macau will bounce back quickly. In its most recent earnings report, Las Vegas Sands saw encouraging early results from the opening of the Parisian Macao casino resort, and the company also saw its Venetian resort in the former Portuguese colony do well, pushing that property's revenue up by double-digit percentages. Overall growth was somewhat more sluggish, with a 3% rise in net revenue and an 8% jump in adjusted net income. Performance at the Sands Cotai Central, Marina Bay Sands, and Las Vegas properties left something to be desired, although they didn't produce any huge negative surprises. Looking forward, the company believes that new opportunities like Japan could be huge, and Sands has said it would spend as much as $10 billion on a Japanese resort if law changes allow it.
Wynn has also seen upward momentum from its latest Macau resort, with the opening of the Wynn Palace on the Cotai Strip more than offsetting poor comparable performance for its existing properties in pushing quarterly net revenue up more than 10% in its most recent quarter. Better performance in Las Vegas has also helped Wynn, but the company will have to work harder to make the most of its older Wynn Macau resort rather than letting newer properties cannibalize existing business. Wynn too is excited about Japan, although the key question is whether opening up the Japanese gaming market will only detract from excitement about Macau.
Overall, both Wynn and Sands have good growth opportunities and similar valuations. For dividend investors, Sands is the clear choice, but others will want to assess whether they believe Sands CEO Sheldon Adelson or Wynn CEO Steve Wynn has the better strategic vision toward long-term growth and prosperity.
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