Tags: Kiesel | gaming | stocks | bonds

Pimco's Kiesel: 'Buy Everything You Can' in Gaming Companies

Wednesday, 06 Aug 2014 09:57 AM

By Dan Weil

While the stock and bond markets may be dicey overall at this point, Mark Kiesel, deputy chief investment officer at Pimco, likes the gaming industry.

Companies in that sector are growing fast, stock prices are cheap and bond yields are high, he tells CNBC.

In particular, Kiesel favors MGM Resorts, Wynn Resorts, Las Vegas Sands and Melco Crown Entertainment. "Buy everything you can in these companies," he urges.

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Their stocks are trading about 10 to 11 times earnings before interest, taxes, depreciation and amortization (EBITDA), their bonds yield about 5 to 5.5 percent and the companies will grow by double digits during the next several years, Kiesel notes.

"These companies throw off significant free cash flow, organic deleveraging power. You want to own the entire capital structure in these companies."

Kiesel sees MGM Resorts as a play on the "amazing" Las Vegas recovery, as it holds 42 percent of the city's room supply. Wynn Resorts "has the potential to grow EBITDA 40, 50 percent over the next two years. There's no kind of growth like that out there," he insists.

He likes Las Vegas Sands as a play on the mass gaming market since 88 percent of its exposure is in Asia, and Macau-based Melco Crown is likely the cheapest of these companies, trading at 10 times earnings.

As for MGM, Morningstar analyst Adam Fleck is impressed with the company's leadership.

"After the disastrous tenure of former CEO Terry Lanni, who nearly drove the company to a bankruptcy filing, new CEO Jim Murren has led perhaps the most remarkable turnaround in the history of the casino industry," Fleck writes on Morningstar.com.

"Murren has focused on increasing returns on invested capital at existing properties, expanding in China and using free cash flow to pay down debt."

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