MGM: Las Vegas Sands vs. MGM: Which Casino Stock is a Better Buy?

MGM Resorts International (MGM - Get Rating) and Las Vegas Sands Corporation (LVS - Get Rating) are two of the leading casino companies worldwide. MGM operates through Las Vegas Strip Resorts, Regional Operations, and MGM China, while LVS owns and operates The Venetian Resort Hotel Casino on the Las Vegas Strip and the Sands Expo and Convention Center in Las Vegas.

As casinos and gaming operations are reopening in some areas of the United States, both MGM and LVS are expected to witness some improvement in their businesses in the coming months. Because we think the gambling market is set to rebound with a general economic recovery, we believe these companies should generate substantial returns in 2021.

Both companies have generated decent returns over the past six months. While MGM gained 60.1% over this period, LVS returned 16.7%. In terms of past nine-month performance, MGM is the clear winner with 202.2% gains versus LVS’s 42.7%. But which of these stocks is a better pick now? Let’s find out.

Latest Movements

On December 3, MGM and MGM Growth Properties LLC announced the completion of a $700 million operating partnership unit redemption. This will further enhance MGM’s already robust balance sheet and strengthen its financial flexibility.

BetMGM, a subsidiary of MGM and GVC Holdings Plc, recently collaborated with the Pittsburgh Steelers to focus on team broadcast programming, digital marketing assets, and in-stadium promotions. This will allow MGM to expand its sports betting operations and stand out in the market.

But on December 11, law firm Jakubowitz launched a securities fraud class action lawsuit against LVS, on behalf of its stakeholders, which could undermine the company’s position over the long run.

Recent Financial Results

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In the third quarter ended September 30, 2020, MGM’s net revenue declined 66% year-over-year to $1.10 billion. Adjusted property EBITDA increased 7% year-over-year.

MGM’s Las Vegas Strip Resorts revenue declined 68% from the prior-year quarter to $481 million because of operational restrictions related to the pandemic.

LVS’s net revenue declined 82% year-over-year to $586 million in the third quarter ended September 30, 2020. Adjusted property EBITDA declined 84.1% from the year-ago value over this period.

Past and Expected Financial Performance

MGM’s total assets have grown at a CAGR of 8.3% over the past three years.

Analysts expect the company’s revenue to increase 75.7% next year. MGM’s EPS is expected to grow 45.8% next year.

LVS’s total assets grew at a CAGR of 1.9% over the past three years.

Analysts expect the company’s revenue to increase 171% next year. LVS’ EPS is expected to grow 172.1% next year.

Profitability

MGM’s trailing-12-month revenue is 1.10 times LVS’. But LVS is the more profitable company with a gross profit margin of 106.3% versus MGM’s 36.5%.

Moreover, LVS EBITDA margin of 12.6% compares favorably with MGM’s negative value.

Valuation

In terms of trailing-12-month Price/Sales, LVS is currently trading at 7.41x, 219.4% more expensive than MGM, which is currently trading at 2.32x. Moreover, LVS’s trailing-12-month EV/Sales of 9.43x is 74.3% higher than MGM’s 5.41x.

In terms of trailing-12-month Price to Book as well, LVS’s 13.82x is much higher than MGM’s 2.21x.

Thus, MGM is the more affordable stock here.

POWR Ratings

MGM is rated “Buy” in our proprietary POWR Ratings system, while LVS is rated “Neutral”. Here are how the four components of overall POWR Rating are graded for MGM and LVS:

MGM has an “A” for Trade Grade, a “B” for Buy & Hold Grade, and a “C” for Peer Grade and Industry Rank. In the 23-stock Entertainment – Casinos/Gambling industry, it is ranked #8.

LVS has a “B” for Trade Grade, a “C” for Buy & Hold Grade and Industry Rank, and a “D” for Peer Grade. It is ranked #12 out of 23 stocks in the same industry.

The Winner

Both MG and LVS are good investment bets considering their market dominance and continued expansion. However, MGM appears to be a better buy because it’s a cheaper investment option for riding the industry’s rebound.

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MGM shares were trading at $30.97 per share on Thursday afternoon, down $0.01 (-0.03%). Year-to-date, MGM has declined -6.20%, versus a 17.25% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...