What Is the Real Value of Las Vegas Sands?
How do you value a gaming stock? I covered this in a broad sense a few weeks ago, and every quarter I try to find the best value in gaming. But we often paint companies with a broad brush, using EBITDA multiples when comparisons aren't exactly the same. This can be useful when trying to find the best stock among gaming stocks, but it doesn't necessarily tell you whether an individual stock is over or undervalued.
Today I'll take a look at Las Vegas Sands (NYS: LVS) and try to determine whether its stock is overvalued or undervalued. I'll use enterprise value/EBITDA for the company's properties to decide its value.
What you're getting
Las Vegas Sands has operations in Las Vegas, Pennsylvania, Macau, and Singapore. Each of these operations should be valued differently based on its growth rate and potential.
Macau grew gaming revenue 42.2% in 2011, so it is reasonable that companies like Melco Crown (NAS: MPEL) , Wynn Resorts (NAS: WYNN) , and Las Vegas Sands be rewarded for focusing on a high-growth area. Macau's growth is far greater than the 3.5% bump in Las Vegas, so we should definitely give that region a higher EBITDA multiple than we give to MGM Resorts (NYS: MGM) or Caesars Entertainment (NAS: CZR) , who focus on slowly growing U.S. markets. I've reflected this in the multiples ranges below.
Property EBITDA (TTM)
EBITDA 2011 Growth Rate
|Las Vegas, Nev.||$333.3 million||7.4%||Five to seven times||$1.7 billion to $2.3 billion|
|Bethlehem, Pa.||$90.8 million||53.9%||Five to seven times||$454 million to $636 million|
|Macau||$1,592 million||28.2%||Eight to 10 times||$12.7 billion to $15.9 billion|
|Singapore||$1,531 million||39.6%*||Eight to 10 times||$12.2 billion to $15.3 billion|
Source: Quarterly filings. TTM = trailing 12 months. *Singapore growth rate is for fourth quarter.
The value I've derived on the right is the overall value of operations, including debt. We'll adjust for cash and debt later.
The exact multiples we should use could be debated. If you think Las Vegas will recover more quickly in coming years, you may think the multiple I've used is low, and if you see Macau growth slowing considerably, the multiple there may be aggressive. I think these are reasonable, but you can play with the numbers if you'd like. The bottom line is that this should give us an idea of the overall value of the company -- but there are a few other things we need to consider.
Las Vegas Sands is opening Sands Cotai Central on Wednesday of this week, which will add significantly to Macau's EBITDA. The company also doesn't own 100% of the Macau operations, which we should consider.
Accounting for Cotai Central
The exact impact of Sands Cotai Central won't be known for quite a while, as the resort will take more than a year to open completely. But I'll assume that it will generate EBITDA in the range of The Venetian Macau -- about $1 billion per year. That would add $8 billion to $10 billion to the value of Macau operations. With that included, Macau is worth $22.7 billion to $25.9 billion.
The company owns just 70.3% of the equity in Macau operations, meaning we need to make some adjustments for debt and equity. If the Macau enterprise is worth $22.7 billion to $25.9 billion, as I stated above, we should subtract the $3.3 billion in debt in Macau and add back the $2.5 billion in cash to get an equity value of $21.9 billion to $25.1 billion.
Las Vegas Sands' ownership stake would then be worth $15.4 billion to $17.6 billion.
Adding it all up
Based on the numbers above, Las Vegas Sands' enterprise should be worth somewhere between $29.8 billion and $35.8 billion. If you then subtract the net debt of $5.3 billion in wholly owned subsidiaries and the stock, it should be worth $24.5 to $30.5 billion.
This value is well below the $43.3 billion market cap Las Vegas Sands currently trades at and is well below the $48.1 billion market cap if all shares were in the open (Adelson owns convertible preferred shares). This indicates the stock may be overvalued based on these numbers.
The market is probably putting more value on Macau and Singapore operations than I did above. You could argue that the fact that no new competition is imminent in either location will provide more value. Even if Wynn and MGM are quickly approved for new resorts, it will take years to build, so maybe a multiple up to 12 tmies is reasonable. What do you think Las Vegas Sands is worth? Leave your thoughts in our comments section below.
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At the time this article was published