Bet On Las Vegas Sands or Penn National Gaming?

by Trefis Team
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Penn National Gaming stock (NASDAQ: PENN) is up by 20% since the beginning of the year but, the shares of its peer Las Vegas Sands (NYSE: LVS) have lost 34% of their value during the same period. While some of the gains in Penn stock can be attributed to the series of acquisitions in 2019 and a diversified presence across the U.S., its long-term obligations have also surged by 20% in the past year. Trefis believes that Las Vegas Sands has better odds for investors looking for long-term capital gains considering its strong command over the mass gaming market in Macau and a low current P/E multiple. As the world battles Covid-19 and certain countries liberalize their restriction measures earlier than others, short term spikes are expected in certain stocks . Therefore, we compare the historical trends in revenues and stock prices of Sands and Penn National Gaming in the interactive dashboard, Las Vegas Sands vs. Penn National Gaming: Las Vegas Sands Will Recover, But At A Slower Pace.

Despite a relatively flat top line for Las Vegas Sands and 50% growth in Penn National Gaming’s revenues since 2017, Sands’ operating margins stand 16-percentage-point taller than Penn. In 2019, Sands’ operating margin stood at 27% whereas it was 11% for Penn National Gaming. As merger-related synergies materialize for Penn in the coming years, we expect its operating margin to remain much below Sands considering the historical trends in Penn’s margins and slow growth in the American commercial casino industry. (As EBITDA margins remain skewed from operating leases and net margins fall from growing debt, we have considered operating margin (EBIT) for comparison). Also, Sands’ current P/E multiple of 13 is lower than Penn’s P/E multiple of 17.

How Do The Core Businesses of Penn National Gaming And Las Vegas Sands Compare?

Penn National is a gaming and racing property manager with a diversified presence across multiple states in the U.S. In 2019, its North, East, South, and West regions contributed 45%, 21%, 12%, and 21% of the total revenues, respectively. While the company offers sports betting and online casino as additional service offerings, it generates 90% of gaming revenues from slot machines. Due to a greater focus on gambling activities than other entertainment offerings, gaming revenues contribute 80% of the company’s top line. On the contrary, Las Vegas Sands is an integrated resort operator with a strong presence in Macau (64% of total revenues). Gaming revenues are also the key contributor to Sands’ top line (nearly 67%) but the company generates a sizable chunk from room rent, business conventions, and food & beverage sales.

After the release of re-opening guidelines by the federal government and various states in May, Penn National has resumed operations at 70% of its properties. Moreover, the company recently raised $600 million from a common stock and notes offering. Despite the growing concerns of a second wave of the coronavirus pandemic, investors displayed strong optimism for Penn National Gaming (after its large drop) with a rebound leading to a 540% gain in its stock price since the lows observed in March. However, the shares of Las Vegas Sands have remained subdued from a steep fall in Macau visitations due to the pandemic. As the Chinese authorities tackle a fresh outbreak in Beijing, limited quarantine-free travel seems to be a possibility for Macau in the coming months. Considering the long-term trends in Macau’s total visitations, mass market gaming revenues, and hotel occupancy levels, Trefis believes that Las Vegas Sands will likely outperform Penn National Gaming in the long run.

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