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On Mar 13, 2013, we reiterated our long-term Neutral recommendation on Las Vegas Sands Corp. ( LVS - Analyst Report ) based on its attractive brand name, growing international exposure and strong product pipeline. However, Las Vegas Sands’ fourth-quarter 2012 adjusted earnings per share lagged the Zacks Consensus Estimate as well as the prior-year levels, which is a major cause of concern.
Why the Reiteration?
Las Vegas Sands’ attractive property locations and strong brand recognition would help it enhance its performance once the market demand improves. The company’s RevPAR (revenue per available room) was up in most of the resorts in 2012 and the trend is expected to continue in 2013.
Las Vegas Sands is currently constructing Sands Cotai Central resort project at the centre of the Cotai Strip. We believe Sands Cotai Central has great growth potential and it will drive visitations at Macau in the coming quarters.
Moreover, a majority of the company's revenues comes from its Sands China property in Macau, which is witnessing higher growth on the back of increased gaming volume, higher margin gain from mass table and slot businesses as well as significant contributions from the other non-gaming components. In addition, after posting weak results in the past few quarters, the company’s business at Marina Bay Sands in Singapore appears to be stabilizing.
We also appreciate Las Vegas Sands’ initiatives of repaying shareholders handsomely through regular and special dividend payments. The company recently raised its quarterly dividend by 40% to $0.35 per share for the first quarter of 2013. This dividend hike will help enhance investor confidence.
Despite sturdy fundamentals, there are some drags that keep us on the sidelines at the current level. Las Vegas Sands’ business in Las Vegas has been sluggish of late as is evident from the decline in revenues in the past few quarters,owing to the prevailing economic slowdown. Although Las Vegas Sands is concentrating on the refurbishment and promotions of its Las Vegas properties, its initiatives are not paying off.
Las Vegas Sands’ upcoming project at Cotai in Macau will face an extreme peer pressure from several Chinese casino operators and other U.S.-based companies. Wynn Resorts Ltd. ( WYNN - Analyst Report ) is building a full-scale integrated resort on the Cotai at the cost of around $3.5--$4.0 billion, which is slated to be completed before the Chinese New Year in 2016. Another U.S.-based casino giant MGM Resorts International ( MGM - Analyst Report ) has also received land approval in January 2013 to construct a casino at Cotai. These new openings may pose a huge threat to the company's business in the future.
Recently, Las Vegas Sands announced its plan to construct a European integrated resort project – EuroVegas - in Madrid, Spain, but only if the project provides 20% cash on return. Considering the ongoing European market crisis, we remain cautious on the successful execution of the project. Las Vegas Sands now has a Zacks Rank #3 (Hold).
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