Betting on These Casino Stocks Is Safe!
Madhukar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The restricted approval of licenses to establish casino-resorts, limits the expansion possibilities of the companies in the game. But if you do get an approval, new properties can act as a driving force for the future growth of such companies. Keeping this in mind, I thought of analyzing some casino resort stocks to see what future endeavors they are in.
Wynn Resorts (NASDAQ: WYNN)
In mid-2012, Chinese regulators approved Wynn’s Cotai land concession, thus clearing the way for a ground-breaking of the project. The foundation work on the Cotai project has begun, with an estimated completion by the second quarter of 2013. The entire project should take about 36 months to complete with an estimation of possible opening by the Chinese New Year 2016. This project covers a massive area of 51 acres which includes approximately 1,500 hotel rooms and about 500 table games. Looking at the shifting paradigm of the gambling industry in the future, Cotai, Macau is the place to be. Wynn's extended presence in the strip is a good step to capture the growing opportunity in the region.
Additionally, the company has also revealed the plans for its property- Wynn Everett worth $1.5 billion. Wynn is in competition with Suffolk Downs to acquire the sole license to establish a gambling destination in Boston in Vegas style. This bid marks the second time the company has tried to enter this market. The project features a hotel with 550 guest suits, a river walk, and boat docks.
Apart from that, some recovery was observed in the last quarter in its Las Vegas property revenue which was up by about 12% and the operating profit was up by about 29% year-over-year. The recovery is expected to continue in the future as well.
Overall as a stock, Wynn seems promising. Although some possible headwinds can be faced by the stock if the lawsuit of its former director, Kazuo Okada against forced buyout materializes in the future.
MGM Resorts International (NYSE: MGM)
The company recently announced its intention to develop an arena in Las Vegas. MGM is planning to open a 20,000-seat indoor arena in partnership with AEG, an operator of many sports venues in the country. The company could spend around $75 million over the arena and it should be operational in 2015. I see this as a positive factor for MGM's profitability in the longer-term. It could serve as a means to increase the foot-traffic around some of the mid-tier assets in the company's portfolio that are facing trouble in gaining momentum in the Vegas recovery.
On a different note, the company is competing with Penn National Gaming to build a casino resort in Springfield, Massachusetts. The company has proposed an $850 million property in downtown Springfield. If materialized this property could bring up to eight million visitors annually. Absence of any other major competition in the region could prove to be an added advantage to the property in the future. The company has been favored by organizations like NACC, fire and police unions that make it more favorable contender than Penn.
Additionally, MGM China - a subsidiary of the company, has announced that in addition to the special dividend of $500 million, the company will also declare a semi-annual dividend not to exceed 35% of its anticipated annual profits. It provides MGM with a stable stream of cash inflow as it owns 51% of the company that will further bolster the company's balance sheet.
Las Vegas Sands (NYSE: LVS)
Major contribution of this company comes from the Macau region, where it operates four different properties. The region saw some weakness in the VIP segment, but MGM's new arena in Las Vegas should help stabilize the profitability of the region. The rough patch seems to be over and the company is regaining its strength. Besides Macau, the company is also planning to expand its operations in Europe.
The company has planned to open Europe's largest resort in Spain. The project, going by the name of Euro Vegas, should cost around $35 billion and will be covered in more than 1800 acres. This property will contain four resorts, six casinos, 3000 rooms, and about 1000 gaming tables. The foundation of the project will be laid in the current year and the first phase will be completed by 2017. Although the current economic condition of the country is weak, but the company will get some special tax benefits which should help boost its profitability in the region.
Recently the company admitted to potential violation of the Foreign Corrupt Practices Act (FCPA). The company accepted the violations that were related to the books and records provisions. This provision requires documentation/controls be in place to prevent bribery or other misconduct. However, the findings were not material and the company is not restating the balance sheet. This issue was less important than the direct anti-bribery provisions of the case. In the past, the majority of cases have resulted in relatively minimal fine outlays within the range of $10-$20 million, but the worst case scenario, as that of Siemens, can be a $800 million fine. So until some more clarity is obtained on the FCPA case I'll remain neutral for the stock.
So, which ones are the safe bet?
New properties bring in new investing opportunity. All of the above casino resort stocks have new ventures lined up for the future. Wynn's expansion in Cotai and the proposed Wynn Everett in Boston should provide some significant upside to the company's stock in the future. MGM's new arena in Las Vegas should help stabilize profitability in the region. And, the proposed site in Springfield if materialized could significantly increase the foot traffic of the company.
As for Las Vegas Sands, the Macau region saw some near-term volatility in the past, but it is gradually stabilizing. Apart from that, the new proposed resort in Spain, the largest in Europe, could significantly increase the revenue of the company in the future. But the FCPA violation should create some short-term headwinds for the stock.
Madhu Dube has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!