With the gambling
boom over, is it time to buy a casino?
In
the past couple of months the land based gambling companies have
been a target of negative discussion, mostly due to the soaring
fuel prices and the respective drop in casino earnings. The
stock prices for many casino operators have lost half of their
value in the past few months, but is this the end to gambling as
we know it or is now the best time to buy a casino? We are
inclined to believe the latter and think that the casino
gambling decline is close to an end.
First, lets look at the current gasoline
prices - at press time the U.S. light sweet crude was trading at
around $124, miles away from the below-$100 per barrel last
November. And even though the current fall in oil prices would
save you no more than $5 per tank at the gas station, the
physiological effect is certain. Will gasoline prices remain at
lower levels or climb up again is yet to be seen, but the
current situation is a welcomed breath of fresh air for all
casinos in the United States.
But we would like to dig a little deeper
than simply the travel costs. What many have failed to realize
is the "bubble" created with the casino stocks in mid to late
2007, or "boom" if you'd prefer the term. For the purpose of
this discussion we will look at the stocks of three of the
biggest U.S. casino gambling operators - MGM Mirage (NYSE:MGM),
Wynn Resorts (NASDAQ:WYNN) and Las Vegas Sands (NYSE:LVS). When
looking at the stock prices of these three casino gambling
giants in the past few years one similarity instantly strikes
the observer - October 2007. During this month all three
companies reached their highest stock price ever. Anything
interesting during 2007, other than gas price - Macau. The
Chinese conclave added the much needed boost in gambling
world-wide and the U.S. casino operators were quick to bet on
the new gambling paradise. And when Macau overrun Vegas in
gambling revenue the stock prices of the three casino giants
soared.
Since gambling tourism is the main
source of income for the U.S. casinos, however, the Macau boom
was not enough to hold the stocks against the mighty barrel of
black gold. But it's not all bad - all three casino operators
are currently trading at their 2005 levels, which we think is a
great news for any investors looking to expand their portfolio
into gambling, without paying the steep price of late 2007
gambling stocks. MGM Mirage, for example, is due to post Q2
tomorrow and we don't expect anything positive, but the company,
although not as profitable, is still turning a good dollar. In
the first quarter of 2008 MGM Mirage posted $1.88 billion in
total revenue, while the total revenue for the entire 2007 was
$7.69 billion. Two weeks ago Wynn Resorts Ltd. reported that its
second-quarter earnings more than tripled compared to last year
due to a hefty tax benefit and strong revenue growth at the Las
Vegas-based casino operator's Macau property. Excluding special
items, profit rose 23.3%. Las Vegas Sands, the casino operator
most hurt from the "Macau cooling", has lost 70% of its value
since October of last year. Sands also posted Q2 net loss of
$8.8 million. But with the fuel prices reaching stable grounds,
a 70% devaluation makes Las Vegas Sands a great buy, in our
opinion.
In a nutshell, we believe that the
casino gambling market had reached the rock bottom (or it's very
near to). With Macau boom cooling off, the casinos are leaving
the speculative and are reaching a price based on the market
fundamentals.
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Published on
08/04/2008
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