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Las Vegas Sands' Revenue Diversification Helps, Debt Hurts

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Las Vegas Sands Corp. (LVS - Free Report) is known for continual investment in new capital projects in Macao and Las Vegas. Also, solid expansion strategies of the company are encouraging. However, stiff competition and greater dependence on debt financing remain concerns.

The company’s scale and diversity of gaming and non-gaming services, across Macao and Singapore operations primarily drove better-than-expected results in fourth-quarter 2017.

Notably, shares of Las Vegas Sands have gained 25.8% in the past year, outperforming its industry’s growth of 21.9%. An upward estimate revision of 0.6% for earnings in the current year, over the last 60 days, also reflects analysts’ optimism.

Given the ongoing recovery of gaming revenues in Macao and continued improvement in the Las Vegas business, the stock is expected to perform well in the quarters ahead.

Continued Expansion & Revenue-Diversification Efforts Bode Well

Low unemployment levels, a slight uptick in consumer discretionary spending and the growth of tourism industry have been favorable for Las Vegas Sands. In order to rake in profits, the company is continuously expanding through planned investments in new capital projects.

Moreover, Las Vegas Sands is consistently trying to diversify its revenue sources. The company remains focused on a convention-based Integrated Resort business model that helps in generating the most diversified set of cash flows and profit from non-gaming segments. Also, in collaboration with Madison Square Garden, Live Nation Entertainment (LYV - Free Report) and Oak View Group, Las Vegas Sands plans to create a large-scale music and entertainment venue in Las Vegas, for concerts and events.

We believe that this continued expansion and focus on non-gaming segment will continue to attract greater number of customers, and help the company generate more sales. Also, due to the diversification in revenue stream, EBITDA margins have been improving consistently as non-gaming segments carry higher margins. On a consolidated basis, adjusted property EBITDA was up 19.7% year over year to $1.34 billion in the fourth quarter on robust operating momentum in Macao operations.

Stiff Competition & Debt Burden are Headwinds

Growth in the tourism industry and increased demand have made Las Vegas and Macao markets highly competitive. Excess supply in these markets might reduce Las Vegas Sands’ market share and thereby hurt its revenues. The company is constantly facing peer pressure from several Chinese casino operators, and other U.S.-based companies including Wynn Resorts (WYNN - Free Report) and MGM Resorts International (MGM - Free Report) .

Meanwhile, Las Vegas Sands’ heavy reliance on debt financing remains a concern. As of Dec 31, 2017, unrestricted cash balance was $2.4 billion, up from $2 billion as of Sep 30, 2017. However, total debt outstanding, including the current portion and net of deferred financing costs, along with original issue discount, was as high as $9.64 billion and increased $0.02 billion sequentially in the fourth quarter of 2017.

Owing to higher debt burden, the company may fail to finance its upcoming projects. Moreover, any downturn in the macroeconomic and credit market conditions would make it difficult for the company to pay or refinance its debt, going ahead.

Zacks Rank

Las Vegas Sands carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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