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We reaffirm our Neutral recommendation on Las Vegas Sands Corp. (LVS - Analyst Report) following mixed second-quarter 2013 results. While the company’s earnings in the second quarter beat the Zacks Consensus Estimate, its sales missed the same.
Why the Reiteration?
On Jul 24, 2013, Las Vegas Sands posted second-quarter 2013 adjusted earnings of 72 cents per share, beating the Zacks Consensus Estimate of 69 cents by 4.3% and the prior-year quarter’s earnings of 51 cents by 41.2%. Strong margins boosted the bottom line. The company’s revenues of $3.24 billion grew 25.6% year over year on the back of solid Macau as well as Singapore business.
Overall, we remain encouraged by the company’s strong brand portfolio and its ability to navigate through a difficult operating environment. Apart from the U.S. and Chinese markets, the company’s venture into new markets especially in Japan, Korea, Taiwan and Vietnam, South America and Europe is expected to be beneficial in the long term.
Las Vegas Sands generates over 80% of its revenues from its properties in Macao, the biggest and highly profitable gaming destination in the world. We remain hopeful about the increase in demand and the flourishing mass market segment in Macao.
After a few weak quarters, the company’s business at Marina Bay Sands, Singapore appears to be improving. The company is also witnessing solid growth in its mass market business in the region, driven by new marketing programs.
Las Vegas Sands is currently developing the Sands Cotai Central resort project at Cotai Strip in Macao. Since the opening of the projects’ phase I and phase II operations, it has witnessed huge footfall. Gaining from growing gaming businesses and increased non-gaming operations, Sands Cotai generated solid revenues in the past four quarters. Considering such higher revenue gains, the company has decided to commence the third phase of the project that will cost around $450 million. Following the completion of the Sands Cotai Central project, it is expected to provide more of a draw for the destination visitors.
Despite such positives, we remained concerned about the Zacks Rank #3 (Hold) company’s high debt level. In the recently concluded second quarter, the company’s revenues missed the ZacksConsensus Estimate by 1.5%, which is a major cause of concern.
We also remain skeptical about Las Vegas Sands’ European integrated resort project – EuroVegas – in Madrid, Spain as the successful completion of the project is subject to many terms and conditions of the government.
Moreover, highly competitive markets of Las Vegas and Macao have added to the woes. The company’s upcoming project at Cotai Strip will face extreme peer pressure from several Chinese casino operators and other U.S.-based companies. The excess supply, especially in the Macao market, might reduce the company’s market share.
Though the company’s Las Vegas business is improving lately, we prefer to remain on the sidelines until a complete recovery in the situation takes place.
Other Stocks to Consider
Some other companies from the gaming industry that are worth considering at the current level include Monarch Casino & Resort Inc. (MCRI - Snapshot Report), Multimedia Games Inc. (MGAM - Snapshot Report) and Pinnacle Entertainment Inc. (PNK - Snapshot Report). All these stocks carry a Zacks Rank #1 (Strong Buy).