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Is Las Vegas Sands a Buy?

Las Vegas Sands (NYSE: LVS  ) is a market leader in the two most coveted gaming markets in the world -- Macau and Singapore -- and runs a successful casino in gaming's former capital, Las Vegas. But over the past year, the stock has returned -11.5% to investors as high expectations caught up to the stock.

Now that the market has had a chance to absorb a full year of operations in Singapore and another year of growth in Macau, the question can be asked: Is Las Vegas Sands a buy for 2012?

Value betting casinos
I like to start my look at gaming stocks by looking at their value relative to competitors. To account for stock value and debt, I use the enterprise value and divide that by EBITDA, a measure of cash flow for casinos, to measure value.

Below, I have compared Las Vegas Sands to competitors Melco Crown (Nasdaq: MPEL  ) , Wynn Resorts (Nasdaq: WYNN  ) , and MGM Resorts (NYSE: MGM  ) .


Market Cap

Net Debt



Melco Crown $5.08 billion $1.23 billion $728.7 million 8.66
Las Vegas Sands $30.77 billion $5.60 billion $3.31 billion 10.99
Wynn Resorts $13.28 billion $1.33 billion $1.60 billion 9.14
MGM Resorts $5.44 billion $11.84 billion $1.25 billion 12.78

Source: Company SEC filings. TTM = trailing 12 months.

As you can see, simply based on EV/EBITDA, Las Vegas Sands doesn't provide the same value as Wynn or Melco Crown on a trailing basis. But neither of those companies have resorts ready to open in the near future, something Las Vegas Sands has with Sands Cotai Central on the Cotai Strip.

If we estimate $750 million in EBITDA from this resort -- slightly lower than Venetian Macau because it has fewer tables -- when completed, and run the numbers again, we get an EV/EBITDA value of 8.96. This is right in line with the other two competitors.

An EV/EBITDA around 9 is a lower ratio than we've seen for some time, but with growth slowing in Macau, it's probably reasonable for these stocks given the maturing nature of their markets. With that said, with less capacity coming on line and most future growth going into existing casinos, we should continue to see solid growth in Macau, Singapore, and even the U.S.

Growth opportunities few and far between
As the law currently stands, there aren't a lot of growth opportunities for gaming companies around the world, besides organic growth at existing casinos. But there are two potential opportunities on the horizon in online gaming and international growth.

Sheldon Adelson is one of the few gaming executives to come out against online gaming in the U.S., so I wouldn't expect the company to take a dominant position if play is officially legalized. Those positions would likely go to Caesars Entertainment and a formidable partnership between MGM, Bwin.Party, and Boyd Gaming (NYSE: BYD  ) . These competitors not only have a larger database of players and have more resorts to offer as rewards for online players.

But international growth will likely favor Las Vegas Sands if it comes to fruition. Las Vegas Sands has identified Korea, Japan, Vietnam, Taiwan, and Europe as potential venues for its next integrated resort development. Japan seems to be a likely location for a bid, and as the largest gaming company in the world, Las Vegas Sands would have the inside track.

Foolish bottom line
Las Vegas Sands has tremendous opportunity in Macau and Singapore in 2012. I would be perfectly comfortable having it in my portfolio, but I only find it a slightly better buy than Wynn or Melco Crown based on valuation.

If Las Vegas Sands is going to outperform the market, it all comes down to how fast Macau and Singapore gaming grows in 2012. If the company is going to outperform competitors, it comes down to Singapore, where I think there's decent potential that Marina Bay Sands generates $2 billion in EBITDA during the year. If that happens, 2012 should be a solid year for Las Vegas Sands.

I have an outperform rating on Las Vegas Sands on My CAPS page, and I'm comfortable keeping it there right now. To see the rest of my picks, click here.

If you'd like someone else's opinion besides mine, what about our Chief Investment Officer, Andy Cross? He recently outlined The Motley Fool's Top Stock for 2012. It's a broad line retailer that's set to take emerging market growth by storm. You can uncover the stock in our special free report by clicking here. The report is free but won't be forever, so take a look while you still can.

Fool contributor Travis Hoium has sold puts in Melco Crown. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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 (1) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 10, 2012, at 11:54 AM, spokanimal wrote:

    You did a nice job on this piece, Travis. I was pleased to see that you strayed from a pure, trailing analysis and projected the impact of Cotai Central in order to try to achieve an apples-to-apples comparison to the other Macau concessionaires.

    That said, there are 2, important aspects of Sand's future that the majority of analysts typically don't miss but were missing in your piece.

    The first is the anticipated impact of Cotai Central on the Venetian/Plaza complex. Venetian has, since it was first built, been underutilized. It's ancillaries, and oversized casino, were built to essentially "grow" into Cotai critical mass as the most central, the most capable, anchor tenant of the strip. There is nothing that Venetian needs more to absorb it's substantial overhead than 6,000 hotel rooms dirctly across the street via a sky-bridge. Any boost that venetian gets from Cotai Central patrons that logically make Venetian/Plaza their #2 destination will amount to very substantial overhead absorption... and we know what that does for EBITDA margins relative to top-line revenues.

    Secondly, there is no mention in your piece of the growing evidence of success with Sand's $130 million junket/VIP initiative. We heard the initial positive reviews from multiple junket aggregators at last june's confab at Venetian, we've learned that the number of applying junkets exceeds available re-vamped suites by almost double, we've seen the junket-fueled improvement in Sands market share from it's nadir of ~14% in September to ~16.5% in December, and they just opened their re-modeled, "premium-mass" accomodations this week. Every analyst is citing the impact this initiative is/will having/have on Sand's future... I don't believe you've addressed it yet.

    As an aside, I would also point out for your readers that we're getting anecdotal evidence of a Galaxy bleed-over impact to the strip. As we learned from the COD launch, it takes upwards of a full year to assess the full-impact of 2nd-stop foot traffic, but the evidence is mounting via channel checks that are emerging. Clearly, there's a peninsula-to-Cotai shift happening that emulates what we saw with COD.

    Finally, September was our first, solid indication of an emerging table shortage borne out of scant resort openings and the table-limit SAR policy. It was part and parcel to MGM's decision last august to provide junket capacity with the caveat that that capacity would revert to direct VIP early this year and it's clearly helping with the over-subscription of junket interest in Sand's remake of it's junket suites...

    ... not to mention what it does for that age-old Las Vegas margin-enhancer... elevated table minimums.


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