Las Vegas Sands (
LVS
,
quote
) reported a blowout quarter Wednesday thanks to accelerating
growth from its Asian properties. LVS reported earnings of $0.70 a
share after one-time costs, compared to an estimate of $0.60.
Revenues came in at $2.76 billion, ahead of the forecast $2.6
billion.
[caption id="attachment_57895" align="alignright" width="300"
caption="The Marina Bay Sands Resort and Casino, Singapore"]
[/caption]
Macao and Singapore, as expected, were
the
standouts in the quarter
. Gaming revenue in Macao jumped 25% to $1.45 billion. Revenue
derived from the Marina Bay Sands property in Singapore, where LVS
is only one of two licensed casinos, increased by a remarkable 51%
to $701.3 million.
Las Vegas numbers showed improvement as well, coming in at
$158.7 million. However, given that U.S. revenues make up only a
tiny fraction of the companies' revenues, improvement here is less
important for the company. However, these positive Las Vegas
numbers from LVS could bode well for beaten-down competitor MGM
Resorts (
MGM
,
quote
) when it reports on May 3rd, as the company generates most of its
revenues from the Strip.
This was truly a landmark quarter; for the first time in the
history of the casino industry, a company reported more than a
billion dollars in EBITDA in a single quarter.
On the conference call, CEO Sheldon Adelson had
no reservations exalting the company's
performance
, even comparing his company's performance to that of Apple (
AAPL
,
quote
). He does have a point: of the more than 12,000 companies that
trade on U.S. exchanges, only AAPL and LVS have compound annual
growth of 20%, a free cash flow yield of 7.5%, and pay a
dividend.
More importantly on the call, Adelson provided insight into some
nagging questions for long-term investors. First, he clarified the
company's expansion plans for the planned complex in Spain.
Importantly, Adelson emphasized that the project would be rolled
out in stages, and only when fully funded. The first stage would
cost $3.5-4 billion. Once the property was able to provide a
cash-on-cash return of 20%, only then would they commence on the
next phase of the initiative, which could eventually total $35
billion.
This serves as a welcome relief to long-term investors.
Adelson's high-risk, high-reward management style almost drove the
company to bankruptcy in 2009 when fears abounded that the
highly-leveraged LVS would be unable to renegotiate their debt
covenants. The notion that Adelson would build a $35 billion casino
through massive leverage in a region with an uncertain future -
Europe, an abundance of casinos (albeit few integrated resorts
with a casino), and a lack of a cultural proclivity for gambling
undoubtedly gave investors pause. This more conservative approach
should prevent another precipitous decline in the stock should
calamity arise in credit markets.
Second, Adelson addressed the issue of cannibalization of Macao
properties as the result of the opening of the brand new Cotai
Central casino. The concern amongst investors was that because of
the table cap imposed by the Macanese government, that the shift of
tables from one casino to another would not markedly improve Macao
revenue. Adelson indicated that this was not the case, that they
shift tables from one casino to another frequently, and that the
company looks to take away business from competitors, not
cannibalize its own business.
The opening of Cotai Central represents a further consolidation
of LVS' strengthening position in the Macao market by increasingly
shifting the epicenter of gaming in Macao
to Cotai away from the Peninsula. While the original Sands property
on the Peninsula may suffer from this move, Sociedade de Jogos de
Macau's Grand Lisboa, Wynn Resorts' (
WYNN
,
quote
) two casinos, and MGM's resort will feel the brunt of this as they
continue to lose market share. Melco Crown Entertainment (
MPEL
,
quote
) and Galaxy Resorts will benefit along with LVS from the
shift because of their presence on Cotai. Interestingly, Adelson
also added that he believes the Macanese government when they say
that no new concessions will be added, even though unconfirmed
reports are swirling that Wynn may receive approval to open a
casino in Cotai.
Adelson also mentioned that the company is looking into the
possibility of opening casinos in Japan, Taiwan, Vietnam, and South
Korea.
Although the company has a number of positive fundamental
catalysts going forward, one looming cloud could pressure the stock
going forward, especially in light of Wal-Mart's (
WMT
,
quote
) tribulations this week. Nagging rumors persist that LVS obtained
their Macao concessions illegally through some sort of bribery.
While the company objects, claiming they're unfounded, it's
important that investors are cognizant of this potential headwind
for the stock.
In sum, LVS looks poised to continue to take advantage of gaming
growth in Asia as a result of its advantageous positions in Macau
and Singapore, as well as its impressive growth rate and return on
capital. In spite of all this, LVS is down 4% on the back of this
report, due to both a technical sell-off and that the company's
win percentage was higher than expected
. The stock has moved down below the 50-day moving average around
56.40. If LVS closes below that, it could test the 100-day around
51.30.
Eighty five percent of analysts have a buy rating on the stock
with an
average target of $65
.
This could prove to be a buying opportunity for long-term investors
looking to start a third position, as the company is
well-positioned to outperform over the long-term, although it may
pull back further before resuming its upward trajectory.
Disclosure: Author is net long LVS; Author's immediate family
is long LVS, long MPEL, and long WYNN, and may reduce WYNN
position within the next 72 hours.
