There’s more than one way to get to heaven, Warren Buffett likes to say.
No one better illustrates the truth of that aphorism than Messrs. Wynn and Adelson.
These visionary CEOs have taken different paths in founding and building multi-billion dollar enterprises that have enriched investors many fold.
For Steve Wynn, Wynn Resorts, Wynn Macau, and earlier Golden Nugget-Mirage Resorts, were built on meticulously designed and exquisite resorts catering to the most affluent patrons and the highest of the high rollers.
Sheldon Adelson built Las Vegas Sands and Sands China on a convention-centric business model, grand scale and the development of retail malls within casinos that can be sold off to help finance the next major project.
Some years ago, they playfully sparred over their different approaches with Wynn famously saying that “bigger isn’t better. Better is better.” And Adelson responding that “Bigger is better.”
The latest illustration of the success of their approaches was revealed in their first quarter earnings releases when both companies smashed expectations.
The sources of their successes were similar—rebounding Macau, ever-stronger Las Vegas and, for LVS, Singapore.
The results in Macau were especially impressive as their new properties helped grow the market with minimal cannibalization.
EBITDA at incumbent Wynn Macau declined just 5.3 percent to $181.1 million. And new Wynn Palace generated $111.9 million meaning combined EBITDA grew a whopping 53.2 percent over last year.
The story was similar for Las Vegas Sands. EBITDA on its much bigger base of Macau properties rose 20.5 percent to $624 million thanks to $82 million contribution from the new Parisian.
And things promise to get even better. Wynn Palace has been greatly hindered by construction disruption as work on a light-rail system nearly surrounds the property, isolating it from foot traffic.
However, Steve Wynn, with his penchant for turning a phrase, said the situation will turn from “suffering… to relief” when the rail line is finished in coming months and starts delivering passengers to the Palace’s front door.
Likewise, all their properties will soon benefit from a new ferry terminal that will deliver passengers from Hong Kong directly to the Cotai section of Macau. Then, in 2018, the bridge connecting Macau to Hong Kong and the Chinese Mainland will open.
That bridge will boost LVS’ convention model by, in effect, opening Macau to the world by making Hong Kong airport, and the 180 cities it serves, conveniently accessible, Adelson said.
Of course, as new properties, Wynn Palace and Parisian have plenty of growing to do before they reach maturity.
Finally, both Wynn and Adelson say the Chinese and Macau governments are again supportive of Macau’s gaming industry, which, at least on paper, has barely begun to penetrate the huge Chinese market.
Then there is surging Las Vegas and the chance for major new markets like Japan.
If major new projects don’t happen, Wynn and Las Vegas Sands, and publicly traded subsidiaries Wynn Macau and Sands China, will have plenty of growing cash for dividends, share repurchases and debt reduction.
So, the outlook appears rosy for both companies. But a good company is not necessarily a good stock.
Both stocks are expensive as the pre-first quarter ratios below suggest, so they could be range-bound for a while:
WYNN LVS
Forward price-to-earnings 25 22
Price-to-growth-ratio 3 8
Enterprise value-to-EBITDA 20 14
However, growth over time will bring today’s ratios down. Accelerated growth will bring them down sooner. Besides, paying a premium for quality can still make for a very rewarding investment.
So, long-term investors should be rewarded.
However, long-term can be an open question when the visionary CEOs are 83 (Adelson) and 75 (Wynn).
That raises the question of what happens when the visionaries aren’t there.
Each has a highly regarded Number Two. Young Matt Maddox at Wynn and veteran Rob Goldstein at Las Vegas Sands.
Yet, almost by definition, the visionary founder brings qualities that even the best executives can’t replicate.
And it isn’t just the vision. It’s the bulldog-determination with which the founder sticks to the model through all conditions and all demands from investors wanting a quicker return.
The good news for anyone considering Wynn or Las Vegas Sands is that Steve Wynn and Sheldon Adelson appear as enthusiastic and energized as any young Turk could be.
