Casino resort operators Wynn Resorts (NASDAQ: WYNN) and Las Vegas Sands (NYSE: LVS) have managed to mount impressive recoveries in recent years. After tough times for several years in the Asian gaming capital of Macau finally gave way to better conditions in the industry, Wynn and Sands have taken advantage of opportunities to try to bolster their respective properties. Now, both companies are looking for growth, and with projects both internationally and within the U.S., Wynn and Sands look appealing to those investors looking to participate in the lucrative casino industry. Still, investors want to know which of these companies is the right choice right now. Let's look more closely at Wynn Resorts and Las Vegas Sands and decide which one is the better buy.
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Valuation and stock performance
In terms of recent performance, both Wynn Resorts and Las Vegas Sands have produced almost identical total returns over the past 12 months. Wynn's return including dividends comes to nearly 33%, and that just barely inches out the 32% total return from Sands since May 2016.
A quick look at valuation suggests at first glance that Las Vegas Sands is a lot more attractive. Looking at trailing earnings over the past 12 months, Sands carries an earnings multiple of 25, compared to greater than 40 for Wynn. However, much of that disparity stems from one-time factors that have temporarily depressed Wynn's earnings. If you instead incorporate future projections of near-term profits into your analysis, the numbers get a lot closer. Wynn trades at about 22 times forward earnings, compared to a forward multiple of 21 for Sands. On balance, the two stocks are very close to each other in terms of valuation and stock performance.
Image source: Wynn Resorts.
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You'll find a much bigger difference between the two casino giants when you look at dividends. Las Vegas Sands has a huge lead in terms of current yield, paying about 5% compared to just 1.6% for Wynn Resorts.
Some have expressed concerns about the sustainability of Las Vegas Sands' dividend, especially since it currently exceeds its earnings. Yet when you measure available cash via pre-tax operating earnings, Sands has more than ample funds to finance the dividend and continue to seek strategic investments to bolster growth.
Wynn, on the other hand, has prioritized other uses for cash. A couple years ago, Wynn chose to reduce its previously fat dividend by two-thirds, freeing up capital for projects like its latest Macau and Boston Harbor properties. The company has a history of preferring one-time special dividends over regular quarterly dividends anyway, and that could be the way that Wynn chooses to go forward once its investment cash needs start to diminish. Nevertheless, for those seeking dividends, Sands is the friendlier option.
Growth prospects and risks
The big question for these two companies is where growth will come from. For Wynn, the company's expansion path is fairly clear, with projects materializing across the globe. In its most recent quarterly report, Wynn said that revenue jumped by nearly half because of Wynn Palace, and that has helped the company dramatically boost its market share in Macau. Efforts to build out the Paradise Park property in Las Vegas should result in greater awareness of Wynn's resorts there, and although Boston Harbor is an untested market, the casino giant is still optimistic about its prospects there. As long as conditions remain favorable in its key markets, Wynn should have a good opportunity to keep growing.
Meanwhile, some are concerned about rising competition for Las Vegas Sands in Macau. Sands was one of the first movers in the Asian gaming capital, but although it got an early lead in building up its properties there, its competitors have finally caught up. However, Singapore is still a hot spot for Sands, and the company is also optimistic about its potential to get in on the opening of the Japanese market. Sands' prospects look good compared to those of its rivals, and that could put the company once again in the enviable position of getting the first taste of growth in what most acknowledge could be a huge gaming and resort market.
Wynn Resorts and Las Vegas Sands are both on an upswing, and Wynn's momentum appears to be stronger for now. However, in the long run, Sands could push Wynn back downward if the Japanese opportunity turns out to be everything that investors believe it could be.
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