This weekend cover story from Barron’s was an article with some concerns over the value of casino stocks with exposure to Macau, and it even hints that valuations are at bubblish levels. It’s summary is "Investors who bet on U.S. gaming companies with Macau outposts have hit the jackpot. But it’s time to cash in the chips, despite bullishness about the gambling mecca’s growth prospects." 

Barron’s focused on Melco PBL and Wynn Resorts, but we also wanted to look at Las Vegas Sands as far as what the expected earnings were.  We wanted to run our own take and add in our own two cents as we have wondered how long the valuations and the strong performances can last there. Current book values are admittedly dated and partially irrelevant but we still wanted to show representation because it shows the bet being made on tomorrow rather than a true value based on current earnings.

Stock                          Price     X-Book  P/E    08P/E    Mkt Cap
Wynn (WYNN)        $134.50    7.76      74    41.77     $15.4Bil
Melco (MPEL)         $14.99      3.1       N/A    136         $6.0 Bil
Vegas Sands (LVS)$118.76   19       222    49.89    $42.2Bil

We also wanted to see how far down each stock was from the 52-week Highs, as well as how much the stock is up over the last year off its trailing 52-week low:
Stock                             Price     Yr. High     %Change   OffLows
Wynn (WYNN)           $134.50  $176.14    -23.64%     +57.2%
Melco (MPEL)            $14.99     $23.55      -36.34%     +50.6%
Vegas Sands (LVS) $118.76  $148.76    -20.16%      +66.7%

If you look at the value and other measures and if you had to pick from the three as which you want to own if Barron’s was just dead wrong, we’d want to look at which has the best P/E ratio for 2008, which is based the most on today’s earnings in case the economy heads south and the growth plans get delayed, and the discount to 52-week highs, and the performance off of 52-week lows (among other things).  On these metrics, Wynn Resorts would be the winner here hands down.

I had my own thought and opinion on this before I wanted to look at what Barron’s was ranking. After staying at the Wynn in Las Vegas this summer, I will personally tell you that the casino resort is a full notch above anything and everything there on the Vegas Strip.  It also has plans to basically double its pleasure with a new adjacent resort.  If the Wynn today is going to be outdone in the near future, it may only be outdone by itself. The Las Vegas Sands’ Venetian was king when I stayed there in 2000 but it is even a league behind The Wynn on the Strip today.  Melco PBL is a pure bet on tomorrow and on Macau, so all your bets are on Macau rather than what you get here in the U.S. too.  We also looked back to a report from August showing the most earnings growth.

Barron’s suffers the same outcome as many other longer-term forecasting, and that is on the real outcome versus today’s snapshot.  If you wanted to take the contrarian approach and use some simple metrics to decide which one you wanted to be in, we’d say out of these three alone that it would be in Wynn Resorts.

Jon C. Ogg
November 19, 2007

Jon Ogg produces the 24/7 Wall St. Special Situation Investing Newsletter; he does not own securities in the companies he covers.

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