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Las Vegas Sands’ Valuation Multiple Could Change after Earnings

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Las Vegas Sands’ current valuation

As of October 12, 2015, Las Vegas Sands’ (LVS) valuation multiple stands at 11.7x. This is lower than its average forward EV-to-EBITDA (enterprise value to earnings before interest, taxes, depreciation, and amortization) multiple of 16.1x. LVS saw its highest valuation of 48x in 2006 and its lowest multiple of 9x in 2012.

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Why EV-to-EBITDA?

LVS operates in a capital-intensive industry. This means that companies may have different debt levels. They also have high depreciation-amortization levels. Since EV-to-EBITDA is a capital structure–neutral ratio, the comparison across peers is more sensible than using price multiples.

Comparison with peers

LVS peers include Wynn Resorts (WYNN), MGM Resorts (MGM), and Melco Crown Entertainment (MPEL). The current average forward EV-to-EBITDA for these peers is 12.2x.

  • All four peers trade close to each other.
  • WYNN enjoys the highest EV-to-EBITDA multiple of 13.2x.
  • Both MGM and MPEL are trading at 12x the forward EV-to-EBITDA.
  • LVS has the lowest valuation multiple of 11.7x.

Since the anti-corruption drive in China began, casino stocks have been in turmoil. Most of them are now banking on shifting dependence of revenues from VIP gaming to mass market revenues. All four players mentioned above are building newer capacities toward this end. What remains to be seen is whether the mass market can save the day for these casinos.

Investors who want to avoid the risk of investing in a single casino company may invest in ETFs that invest in casino stocks. One of these ETFs is the VanEck Vectors Gaming ETF (BJK). For a broader exposure, you can invest in the iShares US Consumer Services ETF (IYC).

We’ll be covering Las Vegas Sands’ 3Q15 earnings, so be sure to check the Market Realist LVS page after the earnings release.

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