By Adil Yousuf
Las Vegas Sands (LVS
) is having a good time lately, with the stock up more than 21% this year - and this has nothing to do with Las Vegas. In fact, this time it's Macau.
LVS made a big bet on Macau gaming about a decade ago that has paid off in spades. Casino revenue in Macau has been growing significantly; reinforcing the Asian gambling hub as the world's biggest gambling market.
This year the region is hotter than ever, and it's only spring. For the first three months of 2013, Macau gaming revenues surged 14.8% when compared to the same period last year. The Chinese gaming enclave shattered the region's monthly gaming revenue record in March, with casinos collecting more than $3.92 billion. The figure eclipsed the previous one-month record of $3.5 billion in gaming revenues, which was set in December 2012.
Based on Market IQ's proprietary Fundamental metrics, LVS is fairly priced relative to its peers: Melco Crown Entertainment Limited (MPEL) and Wynn Resorts Ltd. (WYNN). Market IQ characterizes LVS as a high Quality and an average Value stock (see below) resulting in an overall Neutral+ rating.
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The Company's Qualitative strengths can be seen in multiple areas such as Revenue Growth, growth in Cash Flow, Return on Equity, and and Financial Strength.
- Over the trailing 12 months, LVS has been able to increase its revenue by 19.33%, which is higher than the industry average of 10.34%. Growth in the Company's revenue has helped boost the Earnings per share.
- LVS has grown operating Cash Flow by an impressive 60% over the last two years. This compares favourably to the growth in Cash Flow for its peers.
- Current Return on Equity of 23.4% exceeded from the same quarter one year prior when it was 18.24%. This is a sign of strength within the Company.
- Interest Coverage ratio of 8.72 is greater than the industry average of 5.82 - this exhibits LVS's strong ability to meet its short term debt obligations.
Based on Market IQ's Valuation metrics, LVS has average Value relative to its peers.
Along with strong Quality metrics and compelling Valuation parameters, LVS is a dividend paying stock - The Company initiated a dividend in 2012 that now yields 2.7%. Additionally, owing to the strong growth in Macau revenue in March 1
, the company is reportedly considering a special dividend this month 2
. This could attract even more investors who are hungry for yield in a low interest rate environment.
Consensus Earnings estimates for LVS have ticked up over the past three months 3 with 15 out of the 20 analyst covering the company having a "Strong Buy" rating. A high Estimate Momentum is potentially a strong catalyst that could drive shares higher.
Q4 2012 Earnings highlighted strong revenue growth in Asia for the casino operator. Overall revenue increased 21% to $3.08 billion, surpassing consensus revenue estimates of $3.03 billion. The increase was mainly due to a 48% jump in revenue from Macau. Additionally, Sands China 4
posted a 52% jump in Q4 profits as its newest resort drew more Chinese visitors.
In the Earnings call, LVS also reiterated its plans to sell Sands' Asian shopping malls worth more than $10 billion, and use proceeds to service debt or to pursue more casino/hotel opportunities 5.
However, it's not all sunshine and rainbows for the casino behemoth. LVS is currently facing a trial where businessman Richard Suen has sued the company, claiming he is owed $328 million for helping the company win a license in 2002 to operate casinos in Macau. While this is unlikely to affect the financial prospects, it will be a bit of an overhang for the stock until it's all sorted out.
LVS has a strong economic moat in Asia 6 along with a strong foothold in its home territory. Going forward, LVS is best positioned to benefit from the rapid ascent of Asia's casino market. Business continues to be encouraging in Macau, and of course, the picture is looking brighter in the U.S. 7 for this year versus last.
Bottom line, in the light of robust growth prospects and solid fundamentals, LVS promises to be a good investment.
1Gambling revenue in Macau jumped 25 percent to a record $3.9 billion in March, as casino operators expanded and added more hotel rooms to draw gamblers from China.
3Over the past 90 days, consensus estimate (fiscal 2013) has increased from $2.64 per share to a current estimate of $2.71.
4LVS owns a 70.3% stake in Sands China. Sands China's properties on Macau include the Venetian Macao, Sands Macao, the Plaza Macao and, its most recent, Sands Cotai. Also Sands China's portfolio includes Marina Bay Sands in Singapore.
5The company is in talks with the Government of Spain for new casino openings. LVS is also one of the bidders to put a multi-billion dollar casino complex into downtown Toronto.
6LVS owns one of only two casino licenses in Singapore and one of six licenses in Macau.
7According to the latest casino figures released by the Nevada Gaming Control Board, Vegas casino revenues increased 15% in February to $1.073 billion, an improvement of $141 million compared to the same month last year.
This commentary is for informational purposes only and does not constitute investment advice. The opinions offered herein are not recommendations to buy, sell or hold securities. Market IQ expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.