Shares of Las Vegas Sands Corp. (NYSE:LVS) traded lower by as much as 3% last Thursday as a result of a slight earnings miss. While shares are up over 20% year to date, they have come well off the highs over the last few weeks. Just a couple months ago, shares traded just above $60 before pulling back sharply as economic and managerial headwinds from none other than the Chief Executive Officer, Sheldon Adelson, hit the wires.
If you have followed my recent articles regarding the company, you would see that I have been extremely bullish when it comes to its longer-term prospects. Even amid executive step downs, China slowdowns, lawsuits, and a number of other struggles, the company has positioned itself as a global leader in the addictive gambling sector. In this article, I would like to review what was a strong quarter, take a look at the long-term prospects, and look at the competitive landscape within the sector.
The report
Las Vegas Sands Corp. (NYSE:LVS) reported its second-quarter results recently. The company reported a 120% increase in its second-quarter net income to $529.8 million, or $0.64 per share, from $240.6 million, or $0.29 per share, on a year over year basis. On an adjusted basis, the company reported EPS of $0.65 compared to analysts’ consensus estimates of $0.68 per share. The miss was due in large part to lower than anticipated table wins out of some of its properties.
Macau, the driver of growth and revenue over the last few years, performed well with record setting table wins and impressive volume growth. Mass table win in Macau for the quarter was up an astonishing 61% to a record $930 million. Las Vegas Sands Corp. (NYSE:LVS) was able to grow twice as fast as the rest of the market in the most significant business segment. The company set record volumes, up 25.7% in the quarter to $42 billion.
Adjusted EBITDA across the Macao property portfolio expanded 53.2% to reach yet another record of $657.2 million. Some may say that gambling is addictive, and will outperform a broad Chinese slowdown, as with many inelastic services. Strength was seen in places other than gaming. Within the Venetian Macao, mall and retail revenue rose a whopping 17.9% and 25.2%, respectively.
The future
The company announced that it had begun construction of its sixth property in Macau. The Parisian Macao, in early construction, will offer consumers the integrated resort benefits long associated with the company’s array of properties in Macau. The Parisian Macao will be seamlessly integrated with the company’s other Cotai Strip properties, including the Venetian Macao, the Four Seasons Macao, Plaza Casino, and Sands Cotai Central to create a great experience for the masses.
While the rest of China may slowing down, Macau has remained hot. Officials predicted earlier this month that gambling revenue will grow 19% in July on a year over year basis to $3.68 billion. Las Vegas Sands Corp. (NYSE:LVS) is set to capture a great deal of this revenue with its 21.5% market share, up from 20.5% last year. Rising income and levels of employment within Macau bodes well for long-term growth, but accessibility improvements will weight far more. A number of train improvements will open up the accessibility of Macau for the average Joe. In addition, the Hong Kong–Zhuhai–Macau Bridge, set to open in three years, will give travelers easy access to the district in only 20 minutes from the Hong Kong airport.
The Street has speculated for some time regarding the rumors of special dividends and shareholder programs on the back of management’s hints. Should the company spin off its non-essential retail assets in Macau, some of the most valuable in the world, it could afford to payout a nice dividend or pay down its debt further.
Competition
Wynn Resorts, Limited (NASDAQ:WYNN) is the owner and operator of destination casino resorts, including Wynn Macau. Wynn Resorts, Limited (NASDAQ:WYNN) is positioned to benefit from many of the same tailwinds mentioned above, including increasing accessibility to Macau alongside income growth. However, over the last few years, the company’s market share within Macau has slipped due to rising competition from Las Vegas Sands Corp. (NYSE:LVS).
In 2008, its market share stood at 15.9%, but declined to 10.8% last year. A 5% drop is huge when you remember the masses of money coming through this tiny island. The company trades at a slight premium to Las Vegas Sands Corp. (NYSE:LVS) when it comes to forward earnings valuations, at 19.51 times. However, the company does carry a slightly higher dividend yield above 3%.
I always like to include an exchange traded fund option for those investors whom may be looking to easily diversify in volatile sectors. In this case, you would want to check out the Market Vectors Gaming (ETF) (NYSEARCA:BJK). The Gaming Index offers investors broad exposure to the gaming sector and provides significant exposure to Macau specifically.
The funds top holdings include Las Vegas Sands, Sands China, Wynn, and MGM, all of which have strong assets in Macau. Moreover, the fund has 46 holdings in total, which are required to generate greater than 50% of their revenue from gaming for inclusion in the fund. The diversification does come with a price, investors must pay 0.65% in net expense fees. These fees aren’t overwhelming if you consider the 1.32% 30-day SEC dividend yield and the commissions saved by using an exchange traded fund for diversification.
I would use any weakness as a result of the most recent quarter to pick up some shares of Las Vegas Sands cheaply. The company trades at only 19 times next year’s earnings, it seems like a bargain considering the company is taking market share in an industry growing at over 20%. Long-term growth in Macau seems likely as a result of rising incomes, high employment, a culture supportive of gaming, and increased accessibility.
Nathaniel Matherson has a long position in Las Vegas Sands. The Motley Fool has no position in any of the stocks mentioned. Nathaniel is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Buying This Bargain on the Pullback originally appeared on Fool.com is written by Nathaniel Matherson.
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