Investing in the gaming industry right now is a gamble that Cramer’s unwilling to make. After all, people don’t rush to the blackjack table during a worldwide recession. So he was a bit surprised when Sanford Bernstein put a buy rating on Las Vegas Sands and Wynn . The whole sector’s come down with the economy, and only a recovery could send them back up. That’s something few expect to happen even by year’s end.
Cramer put the casinos in the Sell Block back in January 2008. Since then Las Vegas Sands is down 97%. Wynn and International Game Technology have both lost 75%. And the business environment these days is even worse than before. Still, Sanford Bernstein seems to think the latter half of 2009 will bring improvements, especially in Asia. The analysts have high hopes for Macau and Las Vegas Sands’ coming Singapore property, and they think key asset sales will help as well.
This reasoning couldn’t be more wrong, Cramer said. The average person is cash-strapped, which is why casino traffic is way down. December was the worst month of 2008 for total Las Vegas visitations, and it was the 10th straight months of declines. Macau is no different. As of January, revenues there had dropped year-over-year for four of the previous five months, thanks to the Chinese government’s visa restrictions and tough comparisons from the first half of 2008.
More bad news: The cost of building that Singapore casino and resort are skyrocketing. The initial budget projected $3.2 billion in spending, but that number’s changed to $5.4 billion. Plus, there’s little chance that Las Vegas Sands will find buyers willing to pay up for its assets. Let’s face it, this isn’t exactly a seller’s market. Besides, only the Macau assets are sellable, and just 25% of the money raised there could be used to pay down U.S. debt.
Las Vegas Sands owes $10 billion to debtors, and the business isn’t making money. And while Wynn and MGM Mirage renegotiated their debt covenants for 2007 and 2008, Las Vegas did not. Now the company needs to raise $2 billion in cash or $307 million more in earnings before interest, taxes, depreciation and amortization to meet those covenants. The Macau covenants, too, are similarly in danger of violation.
Cramer thinks all the casinos belong in the Sell Block. The only good thing about Sanford Bernstein’s call was short-term boost it gave to these stocks. Investors unfortunate enough to own this group should use that pop to cash out.
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