Friday, February 4, 2011

Las Vegas Sands (LVS) Struggles v Expectations

Las Vegas Sands (LVS) appears to be a victim of too high expectations.  While the company beat on the bottom line, revenue came in below expectations and the stock is being punished quite severely for it.  It seems a bit of an overreaction from this seat.

The stock has fallen to the lower end of a range it has been carving out for the past few months between $44 and $52, bouncing off the 50 day moving average today.  While there is an ominous gap in the chart around $41 that could be filled, it will probably require the broader market to fall - which apparently has become an impossibility.  So one could trade this one long versus the 50 day moving average and/or the $44 level.  In a serious market correction a move down to the $37 to $41 would create a favorable long term entry point.  Nearer term, if there is no correction, the stock is building a multi month base that once broken out to should lead to a very nice move, much like we experienced in 2010.   [Sep 22, 2010: Nice Base Building in Las Vegas Sands]

Macau and Singapore continue to be the reasons to buy, although any meaningful U.S. economic recovery would obviously help the Las Vegas operations.

  • During the quarter, Las Vegas Sands earned 42 cents a share on an adjusted basis on revenue of $2.02 billion. Analysts were calling for a profit of 39 cents a share on revenue of $2.07 billion. 
  • Macau once again posted strong trends, but it didn't translate into a big enough revenue gain for investors.  Sands China reported a 13% jump in revenue to $1.09 billion, while adjusted earnings rose 37% to $332.8 million. 
  • "In general, we were very impressed by the Macau performance in the quarter and we believe the results reinforce our view that the market share declines in the fourth quarter were misleading," Wells Fargo analyst Carlo Santarelli wrote in a note. 
  • Its $5.7 billion Singapore flagship, Marina Bay Sands, which opened in April, generated EBITDAS of $305.8 million.  
  • "Strength in Macau related to its mass market positioning and ensuing strong margin performance was overshadowed by a sequential decline in Marina Bay Sands VIP volumes, despite a respectable EBITDAR result at the property," Greff wrote.  While Greff said he, and many investors, were surprised by the magnitude of the sequential decline at Marina Bay Sands, he advises that the property is still very new and seasonality is unknown.
  • Fourth-quarter revenue at the Singapore casino climbed 15% from the third quarter, while operating profit jumped 35%. Las Vegas Sands executives said on a conference call with analysts that they are still figuring out the seasonal flow of the Singapore market, and that the new year had started out a success.
  • In Las Vegas, Sands' EBITDA rose to $80.6 million in the fourth quarter from $56.9 million a year earlier.    Greff believes Sands will generate stronger Las Vegas Strip results compared to its peers given its convention focus and solid position in the Asian baccarat segment. 
  • The company's Las Vegas operations, showed some signs of improvement in the fourth quarter, deriving more money from purchases of food and beverages and from retail business and spending less on giveaways. Nonetheless, room rates continue to drop and casino revenue was down from a year earlier
  • "Additionally, in our view, Las Vegas Sands is uniquely positioned to compete for new casino/convention resorts in Asia and other jurisdictions given its recent success in Macau and Singapore, its proven ability to develop successful integrated casino resorts, and growing free cash flow and low balance sheet leverage," Greff wrote. 
  • Sterne Agee analyst David Bain upped his price target on the stock to $60 from $53 following the results.  "While we debate the smaller points of contention within the company's fourth-quarter results, directionally we continue to believe it is difficult to find a better consumer (not just gaming) story than Las Vegas Sands," he wrote. 
[Jul 29, 2010: Las Vegas Sands Wins Bet on Asia in Q2]
[May 7, 2010: Las Vegas Sands Narrows Loss]
[Feb 24, 2010:  First Phase of Singapore Casino for Las Vegas Sands to Launch in April]
[Nov 9, 2009: Las Vegas Sands Sets Hong Kong Macau IPO Range of $2.5B to $3.3B]
[Sep 3, 2009: Las Vegas Sands - Too Big to Fail?] 

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