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Las Vegas Sands (NYSE: LVS ) had another incredible quarter in Q1, topping $1 billion in property EBITDA for the first time. So why did the stock finish the day down more than 3%? Let's cover the numbers, and we'll get to the stock drop in a minute.
Can I color up, please?
Marina Bay Sands has become far and away Las Vegas Sands' flagship property and generates nearly half of the company's EBITDA. During the first quarter, revenue grew 45.1% to $848.7 billion and EBITDA jumped 66.1% to $472.5 million, an incredible 55.7% EBITDA margin. As impressive as these numbers are, there may be even more room for growth. Table game win per unit per day was $12,975 in the quarter, below the $14,334 The Venetian Macau generates, showing there's still upside in gaming.
Las Vegas was another positive -- the first time I've said that in a while. Net revenues grew 26.1% from a year ago, driven by the casino, and property EBITDA rose 77.6% to $115.8 million. Strong meeting and convention business combined with strong baccarat play to generate the results. A bounce in Las Vegas revenue would help MGM Resorts (NYSE: MGM ) and Caesars Entertainment (Nasdaq: CZR ) as well, but Las Vegas Sands hasn't been a great proxy for them in the past, so I would wait to see their results before calling it a comeback. Gaming win is up, but the high end of the market has captured much of that business in recent history.
Overall in the first quarter, the company's revenue grew 30.8% to $2.76 billion, adjusted property EBITDA increased 43% to $1.07 billion, and earnings per share reached $0.70. The numbers are absolutely incredible.
Competition heats up on Cotai
The one number that wasn't impressive was growth at The Venetian Macau. The oldest casino on the Cotai Strip may be losing some of its shine as new resorts pop up all around it. Revenue grew 21.1% from last year and EBITDA rose 23.4%, but when you look on a sequential basis, the results aren't as impressive. Property EBITDA fell 0.5% versus the fourth quarter of 2011, a number that can no longer be blamed on the newest Cotai resort, Galaxy Macau. Four Seasons Macau also grew EBITDA just 7.1% sequentially, so The Venetian's results weren't an outlier.
I'm definitely not ready to throw the towel in on the company's Cotai properties, but resorts from Melco Crown (Nasdaq: MPEL ) , Galaxy, and even Las Vegas Sands itself are increasing competition. Meanwhile, on the Macau Peninsula, where Sands Macau competes with Wynn Resorts (Nasdaq: WYNN ) and MGM Resorts, casino EBITDA growth was strong quarter over quarter. The slowing growth is simply something to be aware of, especially now that Galaxy is adding a $2 billion addition to its resort on Cotai and Las Vegas Sands plans to move forward with Lot 3.
Why the drop?
So why is Las Vegas Sands' stock down significantly if results were so strong? The stock had simply become too expensive. I highlighted it on April 9, when the stock closed at $60.62, the stock simply has too much growth baked into the price. Any slip-ups and the stock will fall. This quarter was far from a slip-up, but The Venetian Macau numbers have me a little worried about whether the resort will maintain its profitability now that Sands Cotai Central is open. That puts a lot of pressure on Marina Bay Sands to continue to rock the gaming world with its incredible results.
There has been a lot of talk about Las Vegas Sands' potential move into Spain and the $20 billion-plus budget of the project. Adelson said during the conference call that each resort would cost $2 billion to $3 billion and would be built in phases. With a 25% equity investment, he expected to invest $4 billion in equity in the first three-year period. If the investment were to be successful, the construction would continue.
The project is still in the early phases, but this should clear up how large the risk would be in comparison with the overall size of the project.
Foolish bottom line
The results from Las Vegas Sands were great, especially Marina Bay Sands. The problem for the stock has simply been that it has a lot of growth already priced in. There are plenty of opportunities for growth to continue in the future, but right now the Macau market needs to digest Sands Cotai Central and Galaxy. If Lot 3 on Cotai is approved for construction, this will add another growth avenue and another location on Cotai for Las Vegas Sands.
There may continue to be a lull or even decline in the stock in coming months as the market decides how much Macau and Singapore can grow in the future. Any further drops could be a good buying opportunity, because the enterprise value/EBITDA ratio of Las Vegas Sands has fallen below 10 when you project Sands Cotai Central in the equation. Any move below $50 will make me take a hard look at this stock.
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