Is Las Vegas Sands a Buy?

Las Vegas Sands (NYSE: LVS  ) is a market leader in the two most coveted gaming markets in the world -- Macau and Singapore -- and runs a successful casino in gaming's former capital, Las Vegas. But over the past year, the stock has returned -11.5% to investors as high expectations caught up to the stock.

Now that the market has had a chance to absorb a full year of operations in Singapore and another year of growth in Macau, the question can be asked: Is Las Vegas Sands a buy for 2012?

Value betting casinos
I like to start my look at gaming stocks by looking at their value relative to competitors. To account for stock value and debt, I use the enterprise value and divide that by EBITDA, a measure of cash flow for casinos, to measure value.

Below, I have compared Las Vegas Sands to competitors Melco Crown (Nasdaq: MPEL  ) , Wynn Resorts (Nasdaq: WYNN  ) , and MGM Resorts (NYSE: MGM  ) .

Company	Market Cap	Net Debt	EBITDA (TTM)	EV/EBITDA
Melco Crown	$5.08 billion	$1.23 billion	$728.7 million	8.66
Las Vegas Sands	$30.77 billion	$5.60 billion	$3.31 billion	10.99
Wynn Resorts	$13.28 billion	$1.33 billion	$1.60 billion	9.14
MGM Resorts	$5.44 billion	$11.84 billion	$1.25 billion	12.78

Source: Company SEC filings. TTM = trailing 12 months.

As you can see, simply based on EV/EBITDA, Las Vegas Sands doesn't provide the same value as Wynn or Melco Crown on a trailing basis. But neither of those companies have resorts ready to open in the near future, something Las Vegas Sands has with Sands Cotai Central on the Cotai Strip.

If we estimate $750 million in EBITDA from this resort -- slightly lower than Venetian Macau because it has fewer tables -- when completed, and run the numbers again, we get an EV/EBITDA value of 8.96. This is right in line with the other two competitors.

An EV/EBITDA around 9 is a lower ratio than we've seen for some time, but with growth slowing in Macau, it's probably reasonable for these stocks given the maturing nature of their markets. With that said, with less capacity coming on line and most future growth going into existing casinos, we should continue to see solid growth in Macau, Singapore, and even the U.S.

Growth opportunities few and far between
As the law currently stands, there aren't a lot of growth opportunities for gaming companies around the world, besides organic growth at existing casinos. But there are two potential opportunities on the horizon in online gaming and international growth.

Sheldon Adelson is one of the few gaming executives to come out against online gaming in the U.S., so I wouldn't expect the company to take a dominant position if play is officially legalized. Those positions would likely go to Caesars Entertainment and a formidable partnership between MGM, Bwin.Party, and Boyd Gaming (NYSE: BYD  ) . These competitors not only have a larger database of players and have more resorts to offer as rewards for online players.

But international growth will likely favor Las Vegas Sands if it comes to fruition. Las Vegas Sands has identified Korea, Japan, Vietnam, Taiwan, and Europe as potential venues for its next integrated resort development. Japan seems to be a likely location for a bid, and as the largest gaming company in the world, Las Vegas Sands would have the inside track.

Foolish bottom line
Las Vegas Sands has tremendous opportunity in Macau and Singapore in 2012. I would be perfectly comfortable having it in my portfolio, but I only find it a slightly better buy than Wynn or Melco Crown based on valuation.

If Las Vegas Sands is going to outperform the market, it all comes down to how fast Macau and Singapore gaming grows in 2012. If the company is going to outperform competitors, it comes down to Singapore, where I think there's decent potential that Marina Bay Sands generates $2 billion in EBITDA during the year. If that happens, 2012 should be a solid year for Las Vegas Sands.

I have an outperform rating on Las Vegas Sands on My CAPS page, and I'm comfortable keeping it there right now. To see the rest of my picks, click here.

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