There are few feelings worse in life than having a tons of bets working at the craps table, where you’ve made just a little money and hope this is the big string of points that will make you rich. You bump up each bet and await the roll of the dice.
Then your stomach just drops as a seven comes up, you hear the dreadful words, “seven out, line away,” and ALL the chips get swept off the table.
That is how investors in Wynn Resorts, Limited (NASDAQ:WYNN) feel right now, as it reported dismal earnings that were even more dismal that the expected dismal. On the flip side, Las Vegas Sands Corp. (NYSE:LVS) struck gold because it is more diversified than its competitor.
Let’s examine the numbers for WYNN stock and LVS stock to see just how different they are.
Fourth-quarter earnings for LVS stock of 92 cents beat the 81-cent analyst estimate, and was up 28% from last year. Now, it is somewhat of a mixed bag. On the one hand, margins were stronger and expenses went down 13%. Adjusted operational cash flow also rose 11% to a hefty $1.3 billion.
Revenue across the board also came in light compared to last year, at $3.4 billion, down 6%. The culprit was, as it has been recently, Macau.
Oh, Macau! The city of broken dreams, for China is not only cracking down on rich corrupt folks, but banning smoking in casinos! How odd considering China has no problem polluting the environment the way it does!
The upside in earnings reflects a decline in operating expenses and improved margins. However, the positives were partially offset by weakness in VIP gambling.
So how did LVS stock manage to boost EPS? It’s that the company is more diversified in terms of geography than WYNN. Over in Singapore, revenue rose 27.1% from last year to $838.6 million and adjusted property earnings before interest, taxes, depreciation and amortization was $518.5 million, up … ready?… 100% from last year.
This came in big despite the fact that the “whales” gambled a lot less, down 27%.
In Ye Little Town of Bethlehem, Pennsylvania, the Sands Bethlehem saw $134 million in revenue, up 7.7% and adjusted property cash flow increased 20% to $134 million in the quarter.
Other than the Four Seasons Macau (where revenues were up 2.4%), everywhere else saw BIG drops in revenue, from 11% to 23%. That’s Macau and Vegas.
Over at Wynn, it was ugly. Revenue in the fourth quarter not only fell by 26% from last year to $1.1 billion, but missed estimates of $1.2 billion. Revenue got clobbered in Macau, down 32%, while Vegas fell 6%, the same as LVS.
Net income fell to $109 million from $231 million last year, a decline of 53% (“seven out, line away”). Although adjusted property EBITDA fell 29% from last year to $352 million, at least WYNN stock managed to stir up that cash flow at all!
Basically, it was all due to declines in table revenue and the high-rollers, who are the targets of China’s corruption crackdown. In WYNN stock case, table revenue was down 24% and the high-rollers spent 17% less.
There was one more roll that came up snake eyes. WYNN has hoped to open its new Cotai casino early next year and that’s going to be delayed about six months. The good news is that Wynn can weather this storm, with $2.4 billion in cash on hand, and low-cost debt of $7.3 billion.
Do you jump in to either stock here? WYNN stock trades at 22x FY15 estimates, although that price-to-earnings ratio will contract. It has an EV-EBITDA ratio of 10.88. It’s almost 40% off its high.
LVS stock has an EV-EBITDA ratio of 9.85 and trades at a PE of 16. It has $3.5 billion in cash and more than $9 billion in debt. It’s about 35% off its high.
Macau problems are ongoing. I think both of these are great companies, and I like LVS stock’s diversified properties. However, I think there is more downside to come.
Buy when there is blood in the streets. We’re not there yet, but keep an eye out.
As of this writing, Lawrence Meyers held puts on WYNN stock, which he will close before week’s end.
