How High Can This Gamer Go?

Shares of Las Vegas Sands (NYSE: LVS  ) hit a 52-week high yesterday. Let's look at how it got here and whether clear skies are ahead.

How it got here
There are two catalysts that have driven Las Vegas Sands over the past year: Marina Bay Sands in Singapore and Sands Cotai Central in Macau. The first is one of just two resorts in Singapore, and which is now running on all cylinders. During 2011 it generated $1.5 billion in EBITDA, nearly as much as the rest of the company's resorts combined. Sands Cotai Central is Las Vegas Sands' newest resort, which began opening this week on the Cotai Strip. The development will add 5,800 rooms to Cotai when complete and will cost up to $5 billion.

Ever since a big hiccup during the financial crisis, when the company almost went under, Las Vegas Sands' fortunes have improved rapidly. Quarterly EBITDA topped $960 billion for the first time in the fourth quarter and will continue to rise as Macau and Singapore satisfy Asia's thirst for gambling.

LVS EBITDA TTM Chart

LVS EBITDA TTM data by YCharts

Profits at Las Vegas Sands' resorts have been strong because competition is limited in its two most important markets. Las Vegas Sands, Melco Crown (Nasdaq: MPEL  ) , Wynn Resorts (Nasdaq: WYNN  ) , and MGM Resorts (NYSE: MGM  ) hold four of the six gaming concessions in Macau, but Sands has made the biggest bet on the future of gaming in Asia. When compared to the operators in Macau, Las Vegas Sands squeezes more profit from its resorts and has a strong return on its assets.

Company

Enterprise Value/EBITDA

Profit Margin

Return on Assets

Las Vegas Sands 14.4 16.6% 6.9%
Melco Crown 10.7 7.7% 5.0%
Wynn Resorts 11.0 11.6% 9.5%
MGM Resorts 11.1 41.5%* 1.7%

Sources: Yahoo! Finance and SEC filings.* MGM profit included one-time gain from MGM China IPO.

The only question is a matter of valuation for Las Vegas Sands. When you include the potential $1 billion in EBITDA that Sands Cotai Central will add to the company, it trades at an enterprise value/EBITDA ratio of 11.2, on par with the competition. But with China's growth slowing, I fear that may be too high right now.

What's next?
In my opinion, all of the gaming stocks I've mentioned above are entering frothy valuation territory, especially when you consider slowing growth in Macau and China. An entry point with an enterprise value/EBITDA below 10 is much more attractive to me than where these stocks are currently trading.

With that said, Sands Cotai Central will be the last resort built in Macau until at least 2015, so any growth that does occur will be spread among existing players. This could lead the companies above to grow into their valuations. However, I would rather buy at a value allowing growth to be my upside.

The CAPS community has mixed feelings about Las Vegas Sands as well. The three-star rating it's given the company is a big thumbs-sideways, giving no direction to investors. For now, I would put Las Vegas Sands on My Watchlist, by clicking here, and be ready to jump in when value looks a little stronger.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (11) | Recommend This Article (4)

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 April 13, 2012, at 3:11 PM, cp757 wrote:

    Adelson spent 5.5 billion dollars to build The Marina Bay Sands in Singapore and people talk as though thats a lot. Disney just finished a new Cruse Liner that cost 1.4 billion so 4 cruise ships would cost 5.6 billion dollars and they have a limited number of people that they can accommodate, and they have huge fuel costs plus they can tip over. Adelsons investment in Cotai Central is a fantastic value because the government supports it and wants him to do well. He has said Singapore is a home run and now the revenue in Macau will be 30% to 40% of a 40 billion dollar market. This week marked an historic event with the opening of Cotai Central 04/11/2012. Sands Cotai Central welcomed over 84,000 visitors during the first six hours of its opening and the crowds were staggering. In total, Sands China properties – Sands Macao, Venetian Macao, Plaza Macao and Sands Cotai Central – welcomed over 200,000 visitors on Wednesday .

  • Report this Comment On April 13, 2012, at 3:18 PM, spokanimal wrote:

    Re: your comment: "There are two catalysts that have driven Las Vegas Sands over the past year: Marina Bay Sands in Singapore and Sands Cotai Central in Macau"

    ... I would say that Singapore was a primary catalyst in the later part of 2010 as it ramped up and LVS initially soared into the mid $50s. LVS's price action in 2011 showed no indication that Singapore isn't fully discounted at this point, Travis.

    Secondly, Cotai Central has been quantified by analysts for many quarters now. A more accurate "surprise factor" during the past few months as LVS PPS has surged has been the apparent success of the company's $130 million junket initiative. The PPS surge has very highly correlated with the ramp in Sand's gaming market share... from a nadir of about 14% last September, to 16.5% in December, to an average of over 18% in all of Q1.

    While I would agree that enthusiasm over Cotai Central plays a part in current price performance, the surprise element of market share gains would conceivably be more of a catalyst, IMHO.

    I also noted, Travis, that you were talking up China's economic weakness in the later part of your piece.

    First, I would note that Sand's dominance in Mass market is arguably more insular to chinese economic weakness. The reason is pretty straight forward in that labor inflation has hardly subsided there and that is the feedstock for the wherewithall of mass market patrons to finance their trips to Macau. VIP business, on the other hand, is more reliant on the credit markets and industrial activity that feeds the coffers of those in official capacity that patronize junket aggregators more heavily.

    Secondly, I would suggest that your "over the shoulder" look at Chinese economic activity that relies on projecting the future performance of LVS... rather than looking at the more positive economic trends within the first quarter, is certainly indicative of the efficacy of your projections. Here are some thoughts on that for you:

    http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks...

    Have a nice weekend, Travis.

    Spokanimal

  • Report this Comment On April 13, 2012, at 3:26 PM, cp757 wrote:

    Travis this last comment you made is a subject we have talked about before. "The CAPS community" has had two stars on this stock from 1.38 cent's to about the 57 dollar range. The stock is now up 4,200% from 3/09/2012 to now and the Motley Fool missed that. You have said over and over in your articles that you liked the stock but it was to high at 14 dollars and then 22 dollars and then 32 dollars. When will you say what you think would be a good entry level ? We will keep an eye out for your recommendation to buy but its been three years.

    "The CAPS community has mixed feelings about Las Vegas Sands as well. The three-star rating it's given the company is a big thumbs-sideways, giving no direction to investors. For now, I would put Las Vegas Sands on My Watchlist, by clicking here, and be ready to jump in when value looks a little stronger."

  • Report this Comment On April 13, 2012, at 3:59 PM, mbablitz wrote:

    China said that they would slow their economy and they did. They turned it down to 8% growth. Oh darn...The predicted hard landing did not happen and will not happen because China can flick a switch, turning up bank reserves or turning down bank reserves. Turning those reserve rates down, turns China's economy into a more domestic economy rather than an export economy. That's beauty of unelected political leadership and the huge domestic demand that China's 1.3 billion people can create.

    I would also point out that a year into all the China doom and gloom talk, Macau's Gross Gaming Revenue (GGR) and tourism numbers continue to set very impressive records in the high 20% ranges YOY.

    The biggest impediments to even even bigger gains in GGR are total numbers of gaming tables and rooms available. LVS is the solving both problems. Better yet, LVS is the only company increasing the supply of tables and rooms. Wait it gets even better, LVS will have an exclusive on new properties in Macau for the next 4 years.

    Sheldon Adelson bold vision of turning a Macau swap into the Cotai Strip is about to pay off in a big way.

  • Report this Comment On April 13, 2012, at 6:23 PM, JF125780 wrote:

    I've owned LVS since November of 2004 when they first went public.

    I bought LVS at $45.00 a share and rode them up to $148. and back to $2.00 a share and now we are at $60.65 and I.m not giving up on them.

    I've done my homework and Adelson is one of the richest men in the country, he also owns over 50% of the company and the with the insiders own 72% of the corp. and he's agressive.

    A number of other reasons which is time consuming.

    Danny Kowkabany

  • Report this Comment On April 13, 2012, at 7:57 PM, cp757 wrote:

    Travis this was pointed out to me by an owner of LVS shares. He was excited about the revenue we have received because you said. "Las Vegas Sands' fortunes have improved rapidly. Quarterly EBITDA topped $960 billion for the first time in the fourth quarter and will continue to rise as Macau and Singapore satisfy Asia's thirst for gambling". I explained to him we will get to 969 billion in revenue but we had a few years to go. I was also surprised to see you closed out your position on LVS even though it was one of the best stock's in your portfolio. I guess you wanted to lock in profits but we will be taking a beating on your revues from now on. Just think of the impact you could have by recommending LVS when it hits 100. All the LVS share holders would go into a panic and sell. Its no big deal its just the Motley Fool and we dont expect that much.

  • Report this Comment On April 14, 2012, at 12:26 AM, cobraman69 wrote:

    cp757,

    I like your comparison to the cruise ships. My only concern in comparing said similar is that all these new casinos are being built along the ring of fire and could also 'tip over' if there was ever an earthquake and/or tsunami. That area has much more potential for major catastrophe's happening even more so than cruise ships tipping over.

    Let's just hope that there never are any major disasters there again and that these super large casino complexes are being built with multiple levels of safety in mind. I'm sure they are too.

  • Report this Comment On April 14, 2012, at 10:30 AM, cp757 wrote:

    cobra I am sorry, the comment about the Cruise ships was inappropriate and you are right we always should be aware of the earth quakes and tsunamis. I did research on the Cruise line industry to find out what the people in the world spend on cruises and I was just amazed. Its a very good business and they are upgrading the fleet of cruise ships all the time. Las Vegas Sands has a new Cruise Ship port that was just put in to Singapore by the resort. The 28,000-square-metre terminal, equivalent to about three football fields, is one of the biggest in Asia .Another interesting fact is the 4th largest Cruise Ship port in the world is in Barcelona. Adelson might build a resort in that city or Madrid Spain and start the construction very soon. Its all good and your comment was well taken, thanks for the chance to explain myself.

  • Report this Comment On April 14, 2012, at 11:38 AM, cobraman69 wrote:

    cp757,

    No apology necesessary. Your comments are always insightful and appreciated! The main reason I read these articles nowadays is to see what you and spokanimal have to say about this industry and how you help these writers express a more accurate view on the subject they're writing about.

    Once the widening and expansion of the Panama Canal is complete we'll see much larger ships being built all over the world and in the end that will mean even more business to ports like Singapore and Barcelona.

    The new port in Singapore should really add to the people coming through Marina Bay. That's just amazing! I can't wait to visit there and see it all for myself!

    I would think that Adelson would probably lean more towards Barcelona with such a large port so close. Do you think he is leaning that way or is it a complete toss-up between the two? I'm sure it will come down to which city gives LVS the most concessions.

    Thanks again,

    cobra

  • Report this Comment On April 14, 2012, at 3:22 PM, mrkrazyk wrote:

    I keep asking myself, "What does the over all Chinese economy have any relationship with Macau"

    The average Chinese worker isn't going to Macau to play slots, there are virtually none, they go to play high stakes Bacarat or roulette or what ever, these people have all the money and the economy means nothing to them. The tourist that comes to Macau certainly are not the average working class, they can't afford the hotels or the cost of a ticket, so why then do we keep discussing the slow down, what slow down?

    Asians love to gamble and gamble big time and they have the money, like the one contributor said earlier, "When does Motley Fool think a good entry point would be for LVS," Motley Fool has sat back and bragged about its great stock buys from 20 years ago and continues to act the Fool that they are only to sell it's worthless books and what ever other pathetic services it wants you to pay for.

  • Report this Comment On April 14, 2012, at 7:24 PM, cp757 wrote:

    cobra the truth is no one knows but with all the research I have done Barcelona is the best location. The airport is the problem and it can be solved by increasing the hieght code. Sheldon Adelson was talking about building in Madrid or Barcelona for 8 to 10 billion with 6 integrated resorts and a total investment of 22 billion. Now Sheldon Adelson Speaking to Reuters, explained: "We are looking at 12 integrated resorts, 3,000 rooms each. "A mini Las Vegas about half the size of the Las Vegas strip in Spain for the European market." According to estimates, each of the new buildings could cost Las Vegas Sands - the firm Mr Adelson is chairman and chief executive of - between $2.5 billion and $3 billion. If they build on the same scale as Marina Bay Sands that would be 43 buildings with 55 stories ( 626 ft in the air ) . The scale is what is hard to understand for most people. I think the risk on this project is what has been the biggest change, putting up 2.5 to 3 billion every 12 to 18 months and a staggered opening will be easy. The golf courses could be in within 18 months and some of the hotel's could open in 24 to 36 mo. Marina Bay Sands went up in 36 months with work stopping many times because of worker shortages. The golf courses fills a large area fast to make the project look further along sooner. JMHO

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