Should You Short Las Vegas Sands Corp. (LVS) Now?

Chairman and chief executive officer, Mr. Sheldon G. Adelson, said that despite the handsome dividend, the company was maintaining “a strong balance sheet and ample liquidity to pursue future growth opportunities.”

One of the commonly adopted practices for evaluating future prospects of a company is to compare it with its peers. The problem here is that LVS is a market leader, and two companies that can be considered to be next in line, Wynn Resorts, Limited (NASDAQ:WYNN) and Melco Crown Entertainment Ltd (NASDAQ:MPEL) are much smaller with market caps of less than one-third of LVS.

Wynn Resorts owns, develops and operates destination casino resorts. The company operates two resorts: Wynn Las Vegas, Nevada and Wynn Macao in the Macao Special Administrative Region of the People’s Republic of China (Macau).

Melco Crown Entertainment, a holding company engaged in the gaming and hospitality industry in Macao,  operates two gaming and entertainment casinos in Macao through its subsidiaries. In the third quarter 2012, MPEL reported EPS of $0.2, which was 17.65% more than what was forecast.

Points to Consider

Book value per share of LVS is $11.04, which is far more than that of WYNN ($4.12) and MPEL ($5.97). LVS also has better operating margin (23.11%) as compared to WYNN (20.83%) and MPEL (12.66%).

Apart from earnings and key financial statistics, some other points to consider are:

  • LVS registered record gaming revenues in Macao, the world’s largest gaming market.
  • With the completion of the second Sheraton Macao Hotel tower in 2013, Sands China will have 9,000 rooms in Cotai Strip of Macao.
  • The World Bank raised the economic growth forecast for the Chinese economy following the fiscal stimulus and measures taken by the government for faster approval of investment.  As the Chinese economy grows, so does LVS.
  • LVS’ market share is secure. Property in Macao is under the strict control of the Chinese government, and no more hotels are expected to come up there for the next couple of years after LVS completes its project.
  • There is speculation that LVS may go for unlocking value and spin off its assets into separate companies – gaming, lodging and malls – and pursue a REIT strategy to increase shareholder value.

The only point of worry is that now that the quarterly earnings report has been released, the stock could be ready for a major correction. The performance of the stock has been impressive in the run up to the release of quarterly results.

Although the positives for the stock far outweigh the fear of a technical correction, investors would do well to watch the downside and protect their profits to a certain extent.

The article Should You Short This Stock Now? originally appeared on and is written by Sujata Dutta.

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