Las Vegas Sands' (LVS) Domestic Market Grows, Macau Weak - Analyst Blog


On Aug 29, we issued an updated research report on Las Vegas Sands Corp. ( LVS ).

On Jul 16, Las Vegas Sands posted lower-than-expected second-quarter 2014 results with earnings and revenue missing the Zacks Consensus Estimate, possibly due to a sluggish Macau market. However, adjusted earnings of 85 cents per share in the second quarter grew 30.8% year over year, owing to an increase in revenues and margins. Total revenue also increased 11.7% year over year to $3.62 billion driven by strong revenues from its properties in Las Vegas.

Despite an 8.1% year-over-year increase in operating expenses, operating margin expanded 250 basis points to 26.5% in the quarter, driven by an increase in revenues.

Las Vegas Sands, one of the leading companies in the gaming and lodging industry, is well poised to grow both strategically and financially. The company is concentrating on renovation and promotion of its Las Vegas properties in order to drive segment performance.

Though tourism in Las Vegas has not yet reached pre-recession levels, it is on its way to recovery. In fact, performance in Las Vegas was better than expected in the second quarter and it is on track to break its annual visitation record. This visitation pattern in the Las Vegas market will be beneficial for the company in the coming quarters.

Las Vegas Sands also boasts various prestigious properties in Macau and generates over 80% of its revenues from the region. However, the region is currently in trouble. Gross gaming revenue in Macau for the months of August, July and June declined 6%, 3.6% and 3.7%, respectively. In fact, the decline in June was the first instance of decline since Jun 2009.

The slowdown can be attributed to the fact that high-stake gamblers are curtailing spending amid a cooling Chinese economy. Also, the nationwide crackdown on corruption in China has compelled Macau officials to impose restrictions on VIP gamblers in order to stop billions of dollars from being siphoned off illegally from mainland China to Macau.

Restrictions like limiting the use of state-backed payment processor UnionPay is making it harder for players to obtain cash to gamble. Moreover, tighter restrictions on visas and the impending ban on smoking in casinos would put pressure on gaming revenues in the upcoming quarters.

However, currently strong growth in the mass market is mitigating the effects of a slowdown in the VIP gaming business to some extent. We expect the company's Macau properties to benefit highly from the increasing demand pattern and the flourishing mass market segment, going ahead. Las Vegas Sands presently has a Zacks Rank #3 (Hold).

Other Stocks to Consider

Better-ranked stocks in the same industry include Limited ( WBAI ) and MGM Resorts International ( MGM ). While Limited sports a Zacks Rank #1 (Strong Buy), MGM Resorts carries a Zacks Rank #2 (Buy).  Investors can also consider China Lodging Group, Ltd ( HTHT ), a stock from the consumer discretionary sector that also carries a Zacks Rank #2.

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LAS VEGAS SANDS (LVS): Free Stock Analysis Report

MGM RESORTS INT (MGM): Free Stock Analysis Report

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500.COM LTD-A (WBAI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: LVS , MGM , HTHT , WBAI

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