The MGM Grand Macau casino resort in Macau, China, sits near completion on Monday, Oct. 15, 2007. ... [+]
BLOOMBERG NEWSLas Vegas Sands looks like the better bet compared to MGM Resorts in our opinion. Our conclusion is based on our detailed dashboard analysis, Is Las Vegas Sands Expensive Or Cheap After A -26.4% Move vs. MGM Resorts International? wherein we compare trends in key metrics for the two casino companies over the years to determine their relative valuations under the current circumstances.
Casino stocks have been trending downwards since the coronavirus outbreak was declared an epidemic in China, which subsequently led to a two-week shutdown in Macau. However, the containment efforts didn’t last long and the WHO declared COVID-19 a pandemic on March 11. The impact of coronavirus crisis and oil price war has been felt by nearly all sections of the global economy, resulting in a 20% decline in market indices. Las Vegas Sands (NYSE: LVS) stock is down by ~26% since early February, while its rival MGM Resorts (NYSE: MGM) has declined 53% over the same period. The huge exposure of MGM Resorts to the low-growth region of Las Vegas has been a deterrent in this recessionary environment. In 2019, MGM Resorts generated nearly 50% of its total revenues from Las Vegas while Sands’ exposure stood at less than 10%.
Las Vegas Sands To Outperform MGM Resorts Leveraged By Its Leadership In Macau
- With the coronavirus pandemic triggering lockdowns in all major economies across the world, the current difference in stock declines has less to do with geographic exposure and more with the future growth prospects.
- Las Vegas Sands commands a 45% share of the mass baccarat market in Macau whereas MGM Resorts’ share stands at around 10%. (Note: Macau’s Mass Baccarat business has been growing at an annual rate of 20% despite the overall contraction of Macau Gaming Market.)
- Moreover, MGM’s sale of Bellagio, Circus Circus, MGM Grand, and Mandalay Bay has unlocked capital for the prospective integrated resort in Japan but, the current downturn increases risks associated with the new project.
- The long-term debt on MGM Resorts and Las Vegas Sands’ balance sheet of $15 billion and $12 billion, respectively, is fairly comparable.
- MGM’s high exposure to the U.S. casino market is a key obstacle in generating higher returns. Also, its long-term debt, which now stands higher than the stock’s market capitalization, has not been eased due to the lease-back transactions with various REITs.
- In 2019, Las Vegas Sands generated $3 billion of operating cash flow while MGM Resorts generated $1.8 billion. While both reported around $13 billion in total revenues.
- Overall, we expect Las Vegas Sands’ to continue to outperform MGM Resorts majorly due to its strong presence in Macau and higher operating cash flow.
Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.
Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture and complements our analyses of the coronavirus outbreak’s impact.
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