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Las Vegas Sands Down 17% in 3 Months: Will it Bounce Back?

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Las Vegas Sands Corp.’s (LVS - Free Report) solid business model, extensive non-gaming revenue opportunities, high-quality assets and attractive property locations are commendable. However, the stock has underperformed the industry in the past three months. Shares of the company have lost 16.7% compared with the industry’s 13.4% decline. This downside can be primarily attributed to the trade war between Beijing and Washington, and lower-than-expected second-quarter 2019 results. Let’s delve deeper.

Factors Likely to Drive Growth

Las Vegas Sands generates a major part of revenues from Macao. In the first and second quarter of 2019, the company witnessed robust growth in the Macao business. Adjusted EBITDA grew 2% in second-quarter 2019, following 3.7% growth in the preceding quarter. In 2018, the company delivered an 18% improvement in adjusted EBITDA. Additionally, it reported robust mass market growth in Macao during the same period. The company achieved record hotel occupancy of 96.5% at the Macao portfolio.

In Macao, Las Vegas Sands has invested over $13 billion since 2004, consistently contributing to Macao's diversification and appeal as a business and leisure tourism destination. In the next couple of years, the company is likely to spend $2 billion. At the moment, the company is focusing on expanding the Four Seasons Tower Suites Macao, St. Regis Tower Suites Macao and the Londoner Macao to strengthen its resort portfolio. Backed by these investments, the company aims to benefit from the likely structural growth in Macao in coming years and stay ahead of the competition in terms of the quality and scale of its product and amenities.

Moreover, EBITDA margins have been expanding consistently owing to the company’s focus on mass and non-gaming segments that carry higher margins. This apart, Las Vegas Sands expects that it would continue to deliver growth in the non-gaming segment. Notably, it has reported margin growth of more than 30% since the beginning of 2012.

In 2018, the company reported hold-normalized EBITDA margin of 38.5%, flat year over year. In second-quarter 2019, adjusted property EBITDA rose 3.3% year over year to $1.27 billion (on a consolidated basis). The upside can be attributed to increase in adjusted EBITDA from The Venetian Macao, The Parisian Macao, The Plaza Macao and Four Seasons Hotel Macao and Las Vegas Operating Properties. While some companies in the leisure industry are still grappling with margin pressure, Las Vegas Sands’ performance has been noteworthy.

 

Concerns

In second-quarter 2019, Las Vegas Sands’ earnings and revenues missed the Zacks Consensus Estimate. With this, the bottom line fell short of the consensus estimate in four of the trailing five quarters, the average miss being 6.1%. Adjusted earnings came in at 72 cents per share, which declined 2.7% year over year and missed the consensus mark of 81 cents. The bottom line was impacted by higher interest expenses. Net revenues totaled $3,334 million, which lagged the consensus mark of $3,424 million but improved 0.9% on a year-over-year basis.

Notably, the trade war between Beijing and Washington is persistently hurting gambling stocks, and Las Vegas Sands is no exception. Moreover, the flagging China property price has adversely impacted the high-end VIP segment.

Zacks Rank & Key Picks

Las Vegas Sands, which shares space with MGM Resorts International (MGM - Free Report) , has a Zacks Rank #3 (Hold). Better-ranked stocks worth considering in the same space include Penn National Gaming, Inc. (PENN - Free Report) and SciPlay Corporation (SCPL - Free Report) . Penn National Gaming sports a Zacks Rank #1 (Strong Buy), whereas SciPlay carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Penn National Gaming has an impressive long-term earnings growth rate of 10%.

SciPlay second-quarter 2019 earnings surpassed the Zacks Consensus Estimate.

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