It's Time For Las Vegas Sands to Step Off the Gas

For fifteen years, Las Vegas Sands (NYSE: LVS  ) has been in expansion mode. After imploding the Sands Hotel in 1996, CEO Sheldon Adelson built The Venetian in Las Vegas and then quickly took the company's growth overseas.

The Sands Macau was opened in 2004, followed by The Venetian Macau and Palazzo in 2007, Four Seasons Macau in 2008, Sands Bethlehem in 2009, Marina Bay Sands in 2010, and later this year sites 5 and 6 are slated to open in Macau. That's a lot for one company to build, and it's time to start thinking about how to start reducing risk or returning money to shareholders (or debt holders). Below I have a table of the four major casino operators comparing their debt to equity, property EBITDA, and revenue for 2010.

Casino Operator

Debt/Equity

Debt/Property EBITDA

Debt/Revenue

Las Vegas Sands

1.52

4.55

1.48

Wynn Resorts (Nasdaq: WYNN  )

1.46

2.46

0.78

Melco Crown (Nasdaq: MPEL  )

0.68

4.01

0.65

MGM Resorts (NYSE: MGM  )

4.02

11.20

8.22

Source: Company 10-Ks.

By looking at the numbers we can see that MGM is in a much worse financial position than competitors with a larger presence in Macau. But among the three casino giants focused in Asia, Las Vegas Sands has the worst ratios when we compare debt to equity, property EBITDA, or sales.

Las Vegas Sands did reduce debt by $884.6 million in 2010, so it is on its way. But with $3 billion of cash on the balance sheet to end 2010, $1.9 billion in operating cash flow (and growing), and large capital expansions coming to a close, it's time to reduce that debt further. If Singapore and Macau continue to grow, it's conceivable that Las Vegas Sands could pay off its $10.1 billion debt within four years -- if it wanted to.

Remember, it was a large debt load that almost sunk Las Vegas Sands just a couple of years ago. Now that times are good, Adelson can loosen the hold that debt has on his company if he chooses. Or he can go chasing a risky development in Spain and stack more debt on the company.

I'm hoping Adelson is willing to dramatically reduce debt and show shareholders he has the ability to reduce risk at Las Vegas Sands. When the company posts first quarter results later today, we'll see if that's exactly what the company starts doing.

Keep up with gaming news and our take on this week's earnings with My Watchlist.

Fool contributor Travis Hoium owns shares of Melco Crown and is short MGM Resorts. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw. Melco Crown Entertainment is a Motley Fool Global Gains pick. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (2)

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  • Report this Comment On May 03, 2011, at 2:28 PM, zed20001984 wrote:

    Sounds good but

    interest rates are at an all time low,expension during global expansion during a recession.can have massive payoff

  • Report this Comment On May 03, 2011, at 3:17 PM, spokanimal wrote:

    Fortunately, LVS did not heed your advice years ago and take a pass on what is now the world's most profitable gaming resort (Marina Bay).

    Similarly, Cotai sites 5&6 are not only promising in their own right but essential to augmenting overhead absorption across the street at Venetian Macau.

    LVS is steps ahead of Wynn and MGM in the world's most dynamic gaming geographies precisely because they have not heeded your advice thus far...

    ... and as a result, they now have the EBITDA to continue doing what they did in 2010... which is a potent combination of growth, ramping cash flow, and meaningful progress toward debt reduction.

    Remember, much as watchers of the U.S. national debt often express the debt in terms of it's percentage of GDP rather than in absolute terms, the future revenues, EBITDA and capitalization of Las Vegas Sands may well make it's current debt load look quite small if it plateaus at current levels.

    Spokanimal

  • Report this Comment On May 03, 2011, at 8:44 PM, 10HighSigns wrote:

    Adelson's the type of guy that has to borrow 10 billion dollars to get sales of half as much and earnings for shareholders compatible with a good newspaper boy's delivery route!

    If he couldn't borrow you wouldn't talk about him.

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