Betting On Casino Stocks? The Odds Favor Las Vegas Sands Over Wynn Resorts

by Trefis Team
-4.07%
Downside
102
Market
97.47
Trefis
WYNN
Wynn Resorts
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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 help, and the WHO declared COVID-19 a pandemic on March 11. The impact of the 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.

Notably, Wynn Resorts (NASDAQ: WYNN) stock is down over 50% since early February, while its rival Las Vegas Sands (NYSE: LVS) has lost 34% of its value over the same period. Although both companies have a similar exposure to Macau (around ~70% of total revenues), Wynn Resorts has grown at a faster rate (~ 15% CAGR) than Las Vegas Sands (~ 7% CAGR) since 2016 – primarily due to the former’s opening of Wynn Palace in late 2016. While Hong Kong protests and new junket regulations were a drag on Macau’s gaming industry in 2019, Las Vegas Sands’ strong presence in Macau’s mass gaming market has been a key driver of its top line last year while Wynn Resorts observed declines due to new regulatory directives for junkets. As we detail in our analysis Is Wynn Resorts Expensive Or Cheap After A -51.9% Move vs. Las Vegas Sands?, which compares the stock price performance and fundamentals of Wynn Resorts and Las Vegas Sands over the last few years, Las Vegas Sands is in a much better position to recover once the effects of the outbreak pass.

 

Las Vegas Sands To Outperform Wynn Resorts By Leveraging 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 Wynn Resorts’ share is less than 15%. (Note: Macau’s Mass Baccarat business has been growing at an annual rate of 20% despite the overall contraction of Macau Gaming Market.)
  • At the end of 2019, the long-term debt on the balance sheet of Wynn Resorts and Las Vegas Sands was comparable at $10 billion and $12 billion, respectively.
  • Wynn Resorts’ high exposure to the VIP gaming market in Macau is a crucial obstacle in generating higher returns. Also, its long-term debt is now double the stock’s market capitalization.
  • Overall, we expect Las Vegas Sands’ to continue to outperform Wynn Resorts majorly due to its strong presence in Macau’s expanding mass gaming market.

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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