Las Vegas Sands Corp. (LVS): Is This Casino Stock Worth the Gamble?

Page 1 of 2

Las Vegas Sands Corp. (NYSE:LVS)It’s been a turbulent two weeks for investors. First, Uncle Ben’s hint at the end of QE3 in 2014 sent the markets into a tailspin. Bond yields spiked to 2-year highs, stocks fell, and market volatility returned with a vengeance. This week, reports that China’s financial system might be facing a liquidity crisis caused all China-related stocks to collapse as well.

This double pressure from the U.S. and Chinese markets has put Las Vegas Sands Corp. (NYSE:LVS), the largest casino company in the world by market cap, in a tough spot. The stock, which has risen more than 2,000% since the dark days of the financial crisis, recently dipped under $50 for the first time in four months. Should investors consider picking up some shares of this volatile growth stock while the markets are off balance, or are lower prices coming soon?

A steadily growing industry in a volatile economy

Las Vegas Sands Corp. (NYSE:LVS), which is based in Las Vegas but generates most of its revenue from Asia, is the largest western casino operator in Macau, also known as the “Vegas of China.” For many years, gambling revenue in Macau soared by high double digits annually, and drew Las Vegas Sands’ American rivals, Wynn Resorts, Limited (NASDAQ:WYNN) and MGM Resorts International (NYSE:MGM), to the table as well. Although expectations have steadily declined to more reasonable growth projections, Macau casinos still reported a 13.5% year-on-year increase in gambling revenue in May – in line with analyst forecasts for 12% to 15% growth.

Although Macau’s gambling business is steadily growing, China’s GDP miss last quarter, its disappointing industrial growth numbers and concerns regarding the country’s banks have all heavily weighed on the stock. China’s interbank lending is currently over 13%, and the government has stated that it does not plan to intervene, as America did, to hold down these lending rates. This has led many analysts to speculate that China is hurtling towards a credit crunch that could cripple its economy.

Breaking down Sands by the numbers

To understand why investors are so worried about Las Vegas Sands Corp. (NYSE:LVS)’s exposure to the Chinese market, we should look back at its first quarter earnings, in which it reported a 13.1% year-on-year increase in profit on a 19.5% gain in revenue.

Source: Las Vegas Sands 1Q Earnings Report

Despite improved numbers in its U.S. properties at Las Vegas and Bethlehem, the company is still completely dependent on the growth of its four Macau properties, especially its flagship Venetian at the Cotai Strip (Macau’s equivalent of the “new” Las Vegas Strip), which generated $872.2 million in revenue, or 43% of its Macau revenue, on its own. Although revenue increased 13% last quarter at the Venetian, revenue slipped 11% at the older Sands Macao casino, which is located in the older part of the city away from the Cotai Strip. However, 39% year-on-year revenue growth is still admirable considering the bearish sentiment regarding China’s economy.

By comparison, Wynn Resorts, Limited (NASDAQ:WYNN) and MGM Resorts International (NYSE:MGM) generate 71% and 30% of their top line from Macau, respectively. Last quarter, Wynn’s earnings rose 52.6% as its revenue rose 5.0%. Its Macau business, which consists of two casino hotels, reported a 4.4% year-on-year gain in revenue. MGM Resorts, which owns a single casino through a 50% joint venture with Macau casino heiress Pansy Ho, squeezed out earnings of a penny per share last quarter, up from a steep loss of $0.44 a year ago, as its revenue rose 3%.

The Foolish Fundamentals

Compared to Wynn and MGM, which both have less exposure to Asia, Las Vegas Sands Corp. (NYSE:LVS) appears to be the better choice fundamentally.

Source: Yahoo Finance, 6/25/2013

Las Vegas Sands Corp. (NYSE:LVS) has the least debt, the best margins, and the cheapest P/E valuation. Its lower debt also insulates it slightly from rising interest rates.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

The 10 Longest Wars of All Time

The 13 Worst Looking Foods that Taste Great

The 6 Most Gruesome Injuries Suffered During a Sports Match

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!