Analyzing Casino Earnings and The Future

Margie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Well, casino results are in, and let's take a look at what cards they all hold. Let’s start with:

MGM

MGM (NYSE: MGM) reported operating results for the 3rd quarter: Their loss widened to $181.2 million (37 cents per diluted share) from $123.8 million (loss of 25 cents per share) in 3rd quarter of last year. They fell short of analysts’ expectations with a much wider loss (analysts projected a 16 cent a share loss), as well as falling just short of expected revenue.  

CEO Jim Murren answered analysts’ question in typical cheerleader fashion: “Our third quarter operating results are reflective of a challenging consumer environment, but we had some bright spots with strong results from MGM Grand Las Vegas and The Mirage and record third quarters from MGM China and CityCenter. We have achieved a great milestone with MGM China by accepting the formal land concession agreement and look forward to continuing to make progress towards a second resort and casino in Macau. Meanwhile, early fourth quarter trends are improving at our domestic resorts and forward convention booking pace is showing growth in 2013 and is further accelerating into 2014.”

He went on to explain the fourth quarter showed promise, and a key metric that the company was watching was the housing market, which was improving. A good housing market gives consumers the faith needed to spend money more freely in Vegas, is my rough translation of Murren’s explanation.

Now they are expanding in Macao on the Cotai strip, announcing a 2.5 billion dollar project. At least here he has a point that not many Chinese have visited Macao, but at this moment in time, not all that many Chinese are yet wealthy enough to .. That said, Macao did have a great quarter, and has a bright future assuming gambling isn’t legalized throughout the rest of Asia …

Analysis

MGM continues to be a perennial underperformer and once again losing more money than analysts expected, it continues its horrid streak. In fact, the company has lost money in every quarter the last several years, with only special accounting situations in Macao or the sale of a large asset (Treasure Island Resort Casino to give the company cash during the financial crisis) has put it in the black.

Two casinos have opened in Singapore, (Sands Marina Bay has doing fabulously so far) which offers at least some competition for Macao, and Japan has considered allowing its own casino resorts as well.

The fact is that MGM with their City Center expansion took on a ridiculous amount of debt at exactly the wrong time. Murren has claimed he can get refinancing at better terms “in his sleep,” but until that actually takes place, MGM’s mountain of debt and continued operating losses puts it in serious peril. Note that MGM’s Las Vegas operations languished while Wynn’s and Sand’s (discussed below) flourished, another indication to me that the company isn’t very well managed.

Why buy a company losing money every quarter? Stay clear.

Wynn

Wynn Resorts (NASDAQ: WYNN) reported third quarter 2012 adjusted earnings of $1.48 per share, surpassing estimates of $1.33 driven by stronger than expected results in Las Vegas, while Macau results declined 4.3% as high roller action dissipated slightly.

The company announced a special dividend (as it has almost every year) of $7.50 in addition to its $0.50 regular quarterly dividend. The company plans to double its quarterly dividend to $1.00 from 50 cents in 2013.

Analysis

When Steve Wynn was CEO of Mirage Resorts, (now MGM) the company executed flawlessly. The company has become a dividend play and although trades at 21x times earnings, I’d much rather bet on Steve Wynn than MGM, though the stock price factors in a decent amount of growth that isn’t immediately obvious.

Las Vegas Sands

Las Vegas Sands (NYSE: LVS) earned 46 cents per share in the third quarter, substantially below Wall Street expectations of 60 cents a share, as well as being below the year-ago quarter earnings of 55 cents per share.

The company showed weakness in its Singapore operations where revenue declined 21%, but revenues in Las Vegas jumped 17%, and Macao was also strong. Sands also raised its dividend by 40% indicating continued confidence in operations.

The Casino Wild Card

Online poker legislation looms huge in the United States, as Senate majority leader Harry Reid attempts to push his bill through Congress. It is a Huge give-away to casino interests in his home state of Nevada- any online poker site must partner with a land based casino enterprise. Though an obviously flawed bill from a free market perspective, this will offer casino companies a new source of high margin revenues, and if passed, will be a small boon to profits.

While lottery interests in various states, (Massachusetts for one) are campaigning hard against the bill, analysts including myself expect passage of a poker bill in some form, especially if Barack Obama is re-elected. (I write this the day before the election)

It is important to note that Shelden Adelson is “morally opposed” to the bill, and actively campaigning against it, and thus Sands will not be reaping the benefits that Wynn, MGM, and Ceasars will.

Of these companies, those with the most consumers visiting their land based casinos (MGM and Ceasars) stand the most to gain from this bill’s passage.

Thoughts? Something I haven't considered? Leave a comment below. 

Foolish Bottom Line

For many companies, successfully capitalizing on a booming Chinese economy is like winning the jackpot. That's literally the case for gaming company Las Vegas Sands, which made a big bet on Macau gaming about a decade ago that's paid off in spades. The company is now looking to spread its empire further, but will it be able to replicate its prior successes? Learn about all these opportunities, and the risks they pose, in the Fool’s brand new premium report on Las Vegas Sands. We're providing a full year of analyst updates to go with it, so make sure to claim your copy today by clicking here.


margiecfl has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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.If you have questions about this post or the Fool’s blog network, click here for information.

blog comments powered by Disqus

Compare Brokers

Fool Disclosure