4 Leisure and Gaming Stocks To Watch
Robert is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
After the disastrous accident of the Carnival Cruise Liner Costa Concordia, I took a look at how the news would affect the stock price of companies in the leisure and gaming industry. This article will review two leisure cruise ship companies and two gaming companies on a relative value and growth basis to determine if the accident has created a buying opportunity. Perhaps one or more of these stocks could help your portfolio. Please use this analysis as a starting point in your own due diligence.
Carnival Corporation (NYSE: CCL) Carnival has a market cap of $23 billion with a price to earnings ratio of 12.23. The stock has traded in a 52 week range between $28.52 and $48.13. The stock is currently trading around $30. The company reported fourth quarter revenues for the period ending on November 30 in the amount of $3.6 compared to revenues of $3.5 billion in the fourth quarter of 2010. Fourth quarter net income was $217 million compared to net income of $248 million in the fourth quarter of 2010.
One of Carnival’s competitors is Rick’s Cabaret International (NASDAQ: RICK). Rick’s is currently trading around $9 with a market cap of $85.22 million and a price to earnings ratio of 11.12. Rick’s does not pay a dividend versus Carnival whose dividend yields 2.9%.
Carnival operates cruise ships and vacation and vacation resorts. In the third quarter the company increased revenues by 3% but saw its net income decrease by 14%. Partly as a result of the worldwide economic recession, over the last four years, the company’s revenues have been flat and its net income has decreased. On January 13, the Carnival Cruise Liner Costa Concordia hit rocks off of the coast of Italy and sank. The accidents cost in human life and financial damages have not yet been determined. However over in the next market session the stock price slumped by 15% from $34.28 to $29.60 on extremely high volume. It is too early to know the extent of the damages that have been caused by the accident but the company’s losses are sure to be high. The company will also have to be concerned about cancellations and providing discounts in order to fill its ships. The stock which was already performing poorly is now down by 27.2% over the last 52 weeks. I think that the stock is more likely to continue moving down than to rebound.
Royal Caribbean Cruises Ltd. (NYSE: RCL) Royal Caribbean has a market cap of $5.86 billion with a price to earnings ratio of 9.35. The stock has traded in a 52 week range of between $18.70 and $49.99. The stock is currently trading around $29. The company reported third quarter revenues of $2.3 billion compared to revenues of $2 billion in the third quarter of 2010. Third quarter net income was $547 million compared to net income of $162 million in the third quarter of 2010.
One of Royal Caribbean competitors is Isle of Capri Casinos Inc. (NASDAQ: ISLE). Isle of Capri is currently trading around $4.40 with a market cap of $171.9 million and a price to earnings ratio of 37.37. Isle of Capri does not pay a dividend versus Royal Caribbean whose dividend yields $1.4%.
Royal Caribbean is a cruise ship operator that has five different brands. In the third quarter the company increased its revenues by 13% and its net income by 14%. Over the last five years the company’s earnings have been bumpy but its 2010 net income is down by 16% from 2007. The stock price suffered as a result of the crash of the crash of the Carnival Cruise ship and was down by 6.4% on the day the news broke. The timing of the accident was unfortunate because “The incident occurred during the peak of "wave season," when close to a third of all cruise vacations for the year are normally booked.” The stock was already in decline and is now down by 42% over the last 52 weeks. Like Carnival it is too soon to know how bad the industry will be hurt by the disaster. The company must face the possibility that it will be hit with cancellations, and may have to provide discounts. This stock is on the decline and I would wait to see a turnaround before making a buy.
MGM Resorts International (NYSE: MGM) MGM Resorts has a market cap of $6 billion with a price to earnings ratio of 2.12. The stock has traded in a 52 week range between $7.40 and $16.94. The stock is currently trading around $12. The company reported third quarter revenues of $2.2 billion compared to revenues of $1.5 billion in the third quarter of 2010. Third quarter net income was $-123.7 million compared to net income of $-318 million in the third quarter of 2010.
One of MGM Resort’s competitors is the Penn National Gaming (NASDAQ: PENN). Penn National is currently trading around $40 with a market cap of $3.14 billion and a price to earnings ratio of 70. Neither Penn National nor the MGM Resorts pays a dividend.
MGM Resorts operates casinos and resorts throughout the United States. In addition the company has recently purchased a majority stake in a casino in Macau, China. In recent years the company has struggled primarily due to the US recession. The company has lost money in nine of the last ten quarters, and in 2010 the company lost $1.4 billion. The company has been moving forward in 2011 and has reported net income of over $3.2 billion through the first three quarters of 2011. The overall casino businesses have improved, but the bulk of the earnings increase came from the sell of stock in the Macau property. MGM Resorts now owns 51% of the Macau property and expects that the property will account for 20% of the company’s earnings by 2014. On August 9, 2011 Jim Cramer said MGM “has a strong balance sheet and will do well with low gas prices.” Apparently, Mr. Cramer was right as the stock price is up by 23% over the last three months. Despite the stock’s recent price run-up its current valuations (price to earnings ratio 2.12/price to book ratio 0.96) are quite cheap. But debt remains an issue. If the economy continues to improve and the Macau investment works out this stock could go higher.
Las Vegas Sands Corporation (NYSE: LVS) Las Vegas Sands has a market cap of $34 billion with a price to earnings ratio of 30.91. The stock has traded in a 52 week range between $36.05 and $50.65. The stock is currently trading around $46. The company reported third quarter revenues of $2.4 billion compared to revenues of $1.9 billion in the third quarter of 2010. Third quarter net income was $424 million compared to net income of $214 million in the third quarter of 2010.
One of Las Vegas Sands competitors is the Wynn Resorts Limited (NASDAQ: WYNN). Wynn Resorts is currently trading around $112 with a market cap of $13.9 billion and a price to earnings ratio of 26.12. Wynn Resorts pays a dividend which yields 1.9% versus Las Vegas Sands which does not pay a dividend.
Las Vegas Sands operates casinos and resorts in the United States, Macau, and Singapore. In the third quarter the company increased its year-over-year revenues by 26% and its net income by 98%. The company has been able to increase earnings on three fronts. In Las Vegas and throughout the United States business has improved because the economy is getting better. In the third quarter the company’s Singapore resort generated $738 million in revenues which was nearly a third of the company’s total sales. That was especially good news because the resort is only in its second year of operation. The company also got good news from its Macau, China resort which generated third quarter revenues of $1.2 billion which was a 16% increase from the third quarter of 2010. On December 9, Jim Cramer had this to say about the Macau resort, “Macau is on fire with the most bullish October on record, and since the Chinese are cutting interest rates, more people are hitting the casinos.” The stock price has been flat over the last 52 weeks but is up by 11% over the last month. If the company continues to grow earnings like it did in the third quarter its stock price will probably move higher.
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