Should You Gamble on Las Vegas Sands?

Las Vegas Sands’s (NYSE:LVS) stock has been on a tear in the last year and is up almost twice as much as the S&P 500 in the past 12 months. The company’s success can largely be attributed to CEO Sheldon Adelson’s vision of turning Macau — a small Chinese administrative region about 40 miles from Hong Kong — into a “mini Las Vegas.” Will Macau be the proverbial Promised Land for Las Vegas Sands shareholders, or does the company expect too much from an island that measures less than 12 square miles? Let’s use our CHEAT SHEET investing framework to decide whether Las Vegas Sands is an OUTPERFORM, WAIT AND SEE, or STAY AWAY.

C = Catalysts for the Stock’s Movement

Macau, one of two Chinese administrative regions, is displacing Las Vegas as the new global gambling mecca. Gambling revenues in the region are around $25 billion year to date and grew 20 percent in July from the previous year. Macau’s gross domestic product grew 10.8 percent last quarter, largely due to the booming gambling industry in the region. In addition, a 31-mile bridge, which connects Hong Kong and Macau, is scheduled for completion in 2015. Since most gamblers coming to Las Vegas Sands’s four Macau-based casinos are from the Hong Kong area, the company should experience even more customers once the bridge is completed. The only threat to the casino boomtown of Macau is its own government — mainland China is seeking to limit the percentage of Macau’s GDP that comes from gambling; however, it is unlikely that the government can or will want to significantly change the landscape of Macau’s economy.

E = Excellent Performance Relative to Peers?

The casino and resort industry has been in a state of flux since the financial crisis. As you can see from the chart below, both Caesars Entertainment (NASDAQ:CZR) and MGM Resorts (NYSE:MGM) do not have trailing price-to-earnings ratios because of their negative earnings. Wynn Resorts (NASDAQ:WYNN) is a significant competitor to Las Vegas Sands and is following suit by increasing its presence in the fast-growing Cotai region of Macau. Still, with a trailing price-to-earnings ratio of 24.96 and a price-to-earnings growth ratio — the lower, the better — of 1.44, Las Vegas Sands appears to the best value of the four major casino companies.

LVS CZR WYNN MGM
Trailing P/E 24.96 N/A 25.30 N/A
PEG Ratio 1.44 N/A 1.99 -25.46
Debt to Equity 1.11 N/A 21.05 1.74
Dividend Yield 2.40% N/A 2.90% N/A

*Data sourced from Yahoo! Finance

E = Earnings are Increasing Year-Over-Year

Las Vegas Sands reported strong second quarter earnings on July 24, led by strong across-the-board revenue increases in its casinos. Most notable was strong growth in Macau gaming volumes, which were up a record 53.2 percent from the previous year’s quarter. In addition to this revenue and earnings growth, Las Vegas Sands announced a dividend increase of 40 percent during the quarter and a $2 billion share repurchase program to take place over the next several years.

Las Vegas Sands has exhibited strong earnings per share growth in the last three quarters, most recently increasing earnings by 120.7 percent from the previous year’s quarter. Additionally, Las Vegas Sands has seen positive sales growth in the last five quarters as a result of higher casino and hotel revenue in Macau.

2013 Q2 2013 Q1 2012 Q4 2012 Q3 2012 Q2
Qtrly. EPS $0.64 $0.69 $0.53 $0.42 $0.29
EPS Growth YoY 120.70% 13.11% 33.27% -4.55% -35.56%
Qtrly. Revenue $3.243B $3.303B $3.077B $2.709B $2.582B
Revenue Growth YoY 25.60% 19.54% 20.93% 12.46% 10.10%

*Data sourced from YCharts

T = Technicals on the Stock Chart are Strong

Las Vegas Sands is currently trading at around $56.90, above both its 200-day moving average of $54.67 and its 50-day moving average of $54.37. Las Vegas Sands has experienced a strong uptrend over the past year — up around 43 percent in the last three months. It has nearly doubled gains made by the S&P 500 since last August. The stock is trading about 6 percent below its 52-week high of $60.54, which it set on May 22.

Conclusion

Las Vegas Sands is the most attractive play in the casino and resorts space right now because of its solid positioning in the rapidly growing Macau region. Its relatively high price-to-earnings ratio is justified by its high growth prospects both overseas and domestically, as traffic in Las Vegas improves. These high growth prospects are amplified by a healthy and growing dividend and $2 billion of future share repurchases. For exposure to the growing tourism industry in Southeast Asia, Las Vegas Sands is an OUTPERFORM.

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