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On Jun 13, 2014, we issued an updated research report on Las Vegas Sands Corp. (LVS - Analyst Report).

On Apr 24, this leading casino company posted better-than-expected first quarter 2014 results with earnings and revenue beating the Zacks Consensus Estimate. Adjusted earnings of 97 cents increased 36.6% year over year owing to an increase in revenues.

Quarterly net revenue increased 21.4% year over year to $4.01 billion owing to higher revenues at Macau properties. Despite a 15.7% year-over-year rise in operating expenses, operating margin expanded 320 basis points (bps) to 27.1% in the quarter, driven by solid operating performance at the Macau properties.

Las Vegas Sands is one of the leading companies in the gaming and lodging industry and is well poised to grow both strategically and financially. The company’s superior business model, extensive non-gaming revenue opportunities, high quality assets and attractive property locations would help it withstand any economic downturn.

Las Vegas Sands generates over 80% of its revenues from Macau, the only city in China where gambling is legal. Revenues from its Macau properties are on the rise given increased gaming volume, higher margin gain from mass table and slot businesses as well as significant contributions from the important non-gaming components. We believe that the company’s Macau properties would continue to benefit from the increasing demand pattern and the flourishing mass market segment, going ahead.

Moreover, 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 the pre-recession level, it is on its way to recovery. According to the Center for Business & Economic Research, visitation in Las Vegas will increase to 0.9% and 2.5% in 2014 and 2015, respectively after experiencing a decline of 0.2% in 2013. This visitation pattern in the Las Vegas market will be beneficial for the company in the coming quarters.

Also, the company is making plans to foray into the Japanese and Korean markets. Japan has the potential to become the third largest gaming destination after Macau and the United States with an expected annual turnover of more than $40.0 billion.

Overall, we expect its strong brand portfolio, solid mass market revenues, upcoming projects in the Cotai Strip in Macau, and increasing traffic in Macau to bode well for the company.  

However, broader macro pressure in the countries where it operates is a major headwind for this Zacks Rank #3 (Hold) company. A sluggish domestic market, as reflected in first quarter revenues, is a concern. Moving on to China, factors that remain concerns include China's crackdown on illegal money transfers, credit growth concerns, potential for tighter restrictions on visas and an impending smoking ban in casinos. These issues could adversely affect the revenues of the company in the all-important Macau region in future quarters.

Moreover, increased hotel openings and promotional activities have made the Las Vegas and Macau markets highly competitive.  Thus, excess supply, especially in the Macau market, might reduce the company’s market share.

Other Stocks to Consider

Better-ranked stocks in the same sector include MGM Resorts International (MGM - Analyst Report), Wynn Resorts Ltd. (WYNN - Analyst Report) and Multimedia Games Holding Company, Inc. (MGAM - Snapshot Report). All these stocks have a Zacks Rank #2.
 

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