Las Vegas Sands Crushes Earnings Again

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.

Speaking Spanish
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.

Interested in reading more about Las Vegas Sands? Add it to My Watchlist, and My Watchlist will find all of our Foolish analysis on this stock.

Fool contributor Travis Hoium has no 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 don't 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 (10) | Recommend This Article (4)

Comments from our Foolish Readers

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  • Report this Comment On April 27, 2012, at 1:44 AM, cp757 wrote:

    Travis Sands Cotai Central opened on April 11, 2012 and will be the final major property to

    open in Macao for at least the next three years. That means the competition from the other casinos will be very limited and LVS will continue to take market share. If you had drilled down a little more you would have seen LVS has reduced net debt to $ 5.7 billion and this will add millions to the bottom line in interest savings. Cash, Cash Equivalents and Restricted Cash was over 4 billion so they are a very secure company. Adelson brought this up on the CC.

    "Of the 12,222 public companies traded in the US, there are only "2" with the combination of a market cap over $20 bn, a 2011-2013 revenue compound annual growth rate of more than 20 percent, a 2013 estimated free cash flow yield of more than 7.5 percent and that also pay a dividend. Those companies are Apple and Las Vegas Sands."

    You don't like Las Vegas Sands and you said you would look at it under 50 so we will see what happens.

  • Report this Comment On April 27, 2012, at 1:59 AM, cp757 wrote:

    Travis you must like Las Vegas Sands a bit because you said Marina Bay Sands " first quarter, revenue grew 45.1% to $848.7 billion " I would think that would take them to 1200 per share.

  • Report this Comment On April 27, 2012, at 8:18 AM, mbablitz wrote:

    Travis, the less obvious but very impressive numbers I see that mitigate the concerns you've highlighted are as follows:

    China has 1.3 billion people. The only legal place for them to gamble is Macau. Macau has capped tables at 5500 until after 2013 with a 3% growth rate per year after that date. By the end of 2013 Sands will own 30% of all tables and slots in Macau.

    On a fair share basis that's 30% of Macau's GGR. Macau's GGR is forecast to grow 20% per year until 2015. That creates huge demand for a very small supply.

    The biggest choke point to even greater growth is the long lines at the entry border gates. It is projected tourist visitation could be increased by 75% per year simply by keeping those gates open 24/7. Macau is working toward that eventuality now.

    Another choke point is labor shortages. Macau has 2% unemployment and strict imported labor restrictions. There are not enough construction workers to build all the new properties projected to open 3 years from now.

    WYNN, MGM, Galaxy, and LVS all have proposed new properties they want to open. LVS is the only one of those 4 with the labor necessary to build them. LVS is also the only 1 of the 4 with government approval to build more properties and casinos in Macau. So, for at least the next 3 or 4 years Macau's only casino supply expansion will come from LVS properties.

    I've just picked some of the low fruit available that demonstrates demand for tables will exceed supply for a long time in Macau.

  • Report this Comment On April 27, 2012, at 10:31 AM, TMFFlushDraw wrote:

    @cp757

    $1,200 per share?

    @mbablitz

    I don't disagree with any of your points. My only question with the stock is how much should you pay for it? I've contested that an EV/EBITDA value over 10 is too high and since then the stock has come down some.

    Since gaming stocks are very volatile you can often find better entry points, like I pointed out on June 24 of last year when the stock closed at $39.19.

    http://www.fool.com/investing/international/2011/06/24/its-t...

    Like poker, patience is key. When LVS, MPEL, or WYNN get to what I consider a good value I'll jump all over it. They're just all at the top of the range I feel comfortable paying right now, which is what makes me highlight the few red flags I can find.

    Travis Hoium

  • Report this Comment On April 27, 2012, at 11:06 AM, cp757 wrote:

    Travis the only reason I thought LVS would be at 1200 per share is you said Marna Bay Sands did over $848 billion so I would think that would reflect in the stock price.

  • Report this Comment On April 27, 2012, at 11:34 AM, mott623 wrote:

    I WISH the stock was at $1200!!

    @Travis--thank you for the very insightful article. I guess I will watch the stock closely for a while!

  • Report this Comment On April 27, 2012, at 3:52 PM, Pkylie wrote:

    Cotai Central opened to ho-hum attendance.

    Business was mediocre at best.

    If it were good, there would have been a flurry of press releases from Sheldon Adelson.

    Once the smoke clears from China's money laundering investigation later this year, Sheldon Adelson will likely lose his gaming license in Macau.

    The expected new leadership to assume control in China later this year has promised to crack down on money laundering by casinos in Macau.

    They are not the corrupt breed who entertained Adelson.

  • Report this Comment On April 28, 2012, at 12:29 PM, cp757 wrote:

    LOL Pkylie the only part of your post's that ever makes sense is the last part of your ID LIE

    Adelson opened Cotai Central to the biggest crowd in one day ever. The attendance to LVS properties was 200,000 people. Adelson said this:

    “The Cotai Strip is the largest tourism project on the planet. And it all began with a vision that started with a reclaimed area of sand and mud and has arrived to where we are now – one giant step closer to establishing Macao as one of the world’s top leisure, entertainment and business destinations. People said it couldn't’t be done; but we have shown that nothing is impossible.”

    The government of China is investing billions with Adelson because he had the vision to build this dream. His dreams are coming true.

    I think all you have is a bitter look at life or a short position on the stock. Either way good luck in life.

  • Report this Comment On April 29, 2012, at 4:56 PM, Pkylie wrote:

    Adelson said this , Adelson said that.

    What happened to condo sales in Macau ?

    Mall sale at the MBS ?

    Newt Gingrich will win the GOP nomination too.

    Adelson is an innate liar, with no morals.

    Anyone prepared to cheat his own sons and brother belongs to the abyss.

  • Report this Comment On April 29, 2012, at 5:51 PM, cp757 wrote:

    LOL Picky lie you do have a funny way of looking at things. As I said "bitter". LVS will do 12 to 13 billion in revenue in 2012 and that is what I go by. You have been "bitter" about LVS from a 1.38 per share to over 55 today. I think you have a short position on the stock and thats why you post these "bitter" things. I wish you all the luck in the world.

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