Time to Cash Out From This Casino Stock?

It really isn't the best time for Las Vegas Sands (NYSE: LVS  ) to get entangled in a legal controversy. Growth in its hot market is slowing, that in its home market is sluggish, and the company has a few other legal inconveniences to deal with. Compounding this situation, the company has potentially gotten into hot water through its dealings with a pair of big-time gamblers. This news has some observers worried that it's started to throw snake-eyes in the casino game. Could it potentially lose big?

The wrong kind of customer
The U.S. Attorney's Office in Los Angeles is investigating how Las Vegas Sands handled money provided to it by two men who subsequently got into hot legal water. One was a native Chinese businessman with Mexican citizenship, Zhenli Ye Gon, who in 2007 was indicted on charges of trafficking chemicals used in the manufacture of methamphetamine.

The other is Ausaf Umar Siddiqui, once a vice president of the large West Coast-based retail chain Fry's Electronics. In 2009, he pleaded guilty to charges of taking illegal kickbacks, through a subsidiary, from the company's suppliers. Siddiqui was subsequently put in the clink for a six-year prison term.

Unfortunately for Las Vegas Sands, before their indictments both men deposited millions of dollars into accounts the company maintains for its high rollers. According to U.S. law, any such transfers to financial institutions -- which, in such cases, casinos are considered to be -- must be reported to the feds if it's apparent or conceivable that the money is sourced from illegal activities.

The company maintains that at the time the transfers were made, it didn't consider either man to be suspicious. The district attorney's office might beg to differ; it's continuing to investigate whether the company violated federal money-laundering laws.

This isn't the only legal headache for the company. A wrongful-termination lawsuit by the Sands China's former CEO has exposed a potential high-level bribery scandal in the company's relationship with a local government official.

Good grief; it's enough to drive an investor to sell their shares and blow the money on an all-night gambling binge.  

When it rains ...
Bad news often comes in bunches, so why should it be any different for big-name casino operators? Las Vegas Sands had already been battered by a disappointing earnings report. Its Q2 results saw a tumble of nearly $200 million in the top line compared with that of the previous quarter (to $2.58 billion), and an unhappy dive in net profit by more than 50% to $241 million.

In addition to the obvious domestic culprit (anemic growth in the U.S.), the company was hurt by a slowdown in its Asian markets, which was to be expected. Sands has a huge footprint in the formerly white-hot gambling market of Macau -- the Chinese "Special Administrative Region" and the only enclave in the country where casinos are legal. Macau has seen relatively weak growth in recent months. In July, for example, its casino revenue was a collective $3.1 billion, only 1.5% higher year on year. This was the lowest growth rate in more than two and a half years. Compare that 1.5% with the 24% jump seen as recently as this past March.

Some of this slowdown was due to a one-time factor -- a nasty tropical storm that hit Hong Kong, one of the enclave's big customer bases. But the general deceleration of the mainland China economy is a top constrictor of growth for Macau, and that situation won't reverse in the short term. On the back of the latest set of numbers, analysts at Fitch Ratings cut their forecast for Macau's annual growth in gambling take for 2012 from the former 15% to 10-12%. The growth for full-year 2011? It was a robust 42%.  

Cashing out and leaving the table
Legal difficulties aside, the Macau slowdown seems to be the big reason investors have been selling off shares of Las Vegas Sands. Its stock is down around 35% from its 2012 peak of $61 and change.

The company's rivals also active in Macau have similarly been smacked by the unforgiving market. Melco Crown Entertainment (Nasdaq: MPEL  ) operates exclusively in the enclave, and its shares are also down around 35% from their year-to-date high. The same is true of Wynn Resorts (Nasdaq: WYNN  ) , which has one of its two casino/entertainment complexes in Macau. Even a player with a more limited presence there, like MGM Resorts (NYSE: MGM  ) , has been punished at the same level by the market, with its shares now trading at $10 after hitting nearly $15 in earlier this year.

A receding tide lowers all boats, so even a company like Caesars (Nasdaq: CZR  ) with no assets in Macau has gotten hammered in the market -- the struggling operator's shares currently trade at $8.15, or 47% below what they could be had for during the salad days of this past spring.

Waiting for the return of Lady Luck

Should investors be folding and taking home what's left of their investment? Perhaps not; Las Vegas Sands remains arguably the best casino stock on the market. Its anticipated two-year earnings growth rate of 58% easily trumps that of Wynn (23%) and Melco (7%), and in contrast to MGM and Caesars it's been consistently profitable despite the weak recent quarter.

True, the Macau slowdown has affected results and will continue to do so, but the company's signature property in the enclave, the massive Sands Cotai Central, is humming along beautifully, with strong occupancy rates and higher-than-the-local-average revenue growth -- even though it's been open only a few months.

The company's also making a big bet on the European market, which at some point has to recover at least a little bit. The EuroVegas project in Spain, essentially a smaller version of everyone's favorite Nevada gambling mecca, will cost around $35 billion, according to company estimates. In spite of that continent's current woes, there are plenty of big fish to be hooked, and the current gambling market there is wide and scattered and seems ripe for consolidation.

True, Las Vegas Sands could be doing a better job skirting the legal issues. Hopefully those problems won't have a material impact on the company's operations; if they don't, look for the shares to recover from their recent pummeling.

It helps that Las Vegas Sands pays one of the higher dividends in the casino sector. For dividend fans, we have the scoop on a bunch of stocks that also like paying back money to their shareholders. Find out which companies they are in our free report "Secure Your Future With 9 Rock-Solid Dividend Stocks," available for immediate download.

Fool contributor Eric Volkman owns no stocks mentioned in the story above. 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. The Motley Fool has a disclosure policy.


Read/Post Comments (10) | Recommend This Article (2)

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 August 09, 2012, at 3:56 AM, TedKane wrote:

    Here's what REAL business editors are saying:

    "(Reuters) - MGM Resorts International's (MGM) chief executive said he remains bullish on Macau".

    MOTLEY FOOL IS AN ABSOLUTE JOKE FOLKS.

  • Report this Comment On August 09, 2012, at 10:03 AM, cp757 wrote:

    Eric Volkman, what did you do at the Prague Film School . If we ask around will we find anything that we can make into a scandal. You say in your profile you went to the Prague Film School. Could I use innuendo to destroy your reputation as an editor and writer ?

    I am just making a point that going after people for some agenda is wrong. Your story could have led with your own words "Las Vegas Sands remains arguably the best casino stock on the market. Its anticipated two-year earnings growth rate of 58% easily trumps that of Wynn (23%) and Melco (7%), and in contrast to MGM and Caesars it's been consistently profitable despite the weak recent quarter."

    Eric lets get the real headline out of the way. Adelson has pledged to spend as much as "$100 million to help Republican Candidates" in this election cycle. The U.S. Attorney's Office in Los Angeles is using innuendo's about money laundering and other illegal activities to destroy Sheldon Adelsons reputation. After the election is over they will say they are officially dropping the case. No apology and no charges.

    Ausaf Umar Siddiqu, was vice president of merchandising and operations manager at Fry’s Electronics from 2003 until 2008. The money he spent in several casinos was spent before 2008. He was not on any Justice Department list of known criminals and he was a top executive with Fry's Electronics. Adelson founded the Computer Dealers' Exhibition (COMDEX) . He has had thousands of executives from the electronics industry gamble at his casinos and he did not look into how they made that money. Why would he have stopped Siddiqu from gambling. What flag should the casino have seen ?

    Adelson has also had politicians from the Democratic party gamble in his clubs that later went to prison for fraud. Should he be investigated for that ? They don't want to go after Jon Corzine in the MF Global scam because he is a good friend of President Obama's, but the evil casino operator is fair game. Is there an adult in the room ? Obama's U.S. General Services Administration spent 835 thousand dollars on a party in Vegas. Has the district attorney's office brought charges ? The government agency is in charge of cutting costs, should the evil casino operators have turned them away.

    The dirty secret in this case is the system does not stand for support of the opposition. Health care is more important than Jobs. They feel they need to demonize the job creators and tax them.They feel they have the power to do this in the open without any retribution. I see nothing to be proud about the handling of this election and I am afraid we will see it get worse. Its sad that you are a part of that Eric.

  • Report this Comment On August 09, 2012, at 2:15 PM, spokanimal wrote:

    It isn't the "district attorney" that is investigating Sands for money laundering... it's "Obama's district attorney" that launched the investigation.

    The deposits by those 2 gamblers occured 7 years ago and for 7 years, there has been no cause for a federal DA to investigate Sands...

    ... then Sands CEO Adelson makes a $10 million contribution to Romney's campaign, Obama's DA launches the investigation, and the media puts it on the front page.

    This kind of thing usually only happens in Communist China. If the GOP had ever reacted to political contributions to opponents in this manner, George Soros would have been in prison long ago.

    Spokanimal

  • Report this Comment On August 09, 2012, at 2:41 PM, TMFVolkman wrote:

    cp757, you raise an interesting point. Of course there are concerns that the LVS probe has something to do with Adelson's high-profile (and high $$$) support of Republican candidates. But the cold hard fact is that the two guys at the center of the probe are convicted criminals who passed a lot of money through Sands - it's normal that this would -- and SHOULD -- be investigated no matter the political profile of LVS's CEO. I don't think it's necessarily a witch hunt although as far as the DoJ is concerned the timing certainly could be better.

    I plead guilty to going to film school. I do, however, categorically deny having anything to do with the current dearth of originality and quality in Hollywood movies these days.

    TedKane, I thank you for being so tolerant and complimentary of we "fake" editors and web sites.

  • Report this Comment On August 09, 2012, at 5:03 PM, cp757 wrote:

    Think of Chevy Chase on SNL doing the news

    This just in : The Prague Film School offers fast-track studies in film making. Practical in focus, the school is geared towards instructing professional-level craft skills in its full-time programs in screenwriting, directing, editing and cinematography. Starting September 2012, the school will be adding full-time acting, documentary film and animation programs to its curriculum.

    The Czech Republic, a former communist country, has undergone a profound economic and political transformation over the last two decades. But many of the country’s institutions have struggled to remain transparent. In recent years the public debate has been dominated by revelations of dodgy deals in everything from multi-billion dollar army contracts to a scheme suspected of skimming nearly a cent from every city transport ticket.

    One of the stundents of the Praque Film School is Eric Volkman.

    In other news.

    Speaking of money machines. In life you just need a very good friend. On 10/2009 he gave them $21,400,000 at 2.463% then with all his power on 11/2009 he gave them $43,300,000 at 2.208%.

    He later had no problem on12/2009 giving them $20,600,000 at the low rate of 2.261% Then on 02/2010 another $25,800,000 at 2.443% on 03/2010. We never even voted for the $35,400,000 at 2.242%.

    He was well on his way to giving them almost a half billion dollars when he gave them $26,200,000 at 2.175% on 04/2010 and then on 05/2010. He gave them $22,400,000 at 2.343% and another $35,500,000 at 2.420% on 05/2010.

    Did The U.S. Justice Department investigate him when on 06/2010 he gave his friends $50,800,000. at 1.957% or on 07/2010 he slipped them another $24,600,000 at 1.853% and then on 07/2010 he gave them a messily $ 100,000 but at the better rate of 1.811%

    How could he find time to go on vacation when he was busy giving them $13,500,000 at 1.554% on 08/2010. When you are a true friend on 09/2010 you can give $17,100,000 at 1.289%.

    Send The U.S. Justice Department after those evil casino operators that think they have integrity and give money to that other guy. I gave my friends $ 9,700,000 at 1.247% on 10/2010 and then on 11/2010 another $ 6,300,000 at 0.921%and on 12/2010 another $32,200,000 at 1.006% on ,01/2011 another $14,800,000 at 1.515% and on 01/2011 another $ 3,000,000 at 1.515% 02/201 $16,600,000 1.470% 03/2011 $11,400,000 1.73% 04/2011 $18,500,000 1.374% 06/2011 $ 4,500,000 1.268% 07/2011 $ 2,400,000 1.075%.

    I bet you thought he gave it to them in one big payment and he could not stop them from going under, and that’s why the government lost half a billion dollars. I bet you are not worried that The U.S. Justice Department wont look into this. In fact we would be shocked if they did. The U.S. Justice Department can fry the enemy of the state.That number one evil entrepreneur but we cant go after the sacred cow.

    Sylandra didn’t get a lump sum in September 2009. Month by month as red flags went up, taxpayer money was shoveled ,and shoveled and shoveled. The FFB is headed by the Secretary of the Treasury, appointed at the President’s pleasure. It runs a loan stable of about $60 billion of which 20% is being used to keep the Post Office afloat, a lot goes to Utility companies and just lately, in July, Solar Partners I II and VIII were added anonymously to the tune of $73,000,000. When Obama came to power, the FFB Department of Energy loan portfolio went from zero to about a $1billion in the first year and then to $9 billion in commitments by September 2010. This money travels behind the scenes. This totals $456,100,000 with 01/10 08/11 and 09/11 not accounted for.

  • Report this Comment On August 09, 2012, at 5:17 PM, cp757 wrote:

    Again think of Chevy Chase on SNL doing the news

    Principal's porn past shocks Prague school

    Director pushed out after students circulate his S&M erotic films

    Posted: June 20, 2012

    By Jonathan Crane - Staff Writer | Comments (0) | Post comment

    The headmaster of an un named Prague school has been forced to resign after he admitted appearing in sado-masochistic erotic movies several years ago.

    Prague 5 Council took the step in response to growing demands that headmaster leave his post at the school, and have launched court proceedings against him in relation to allegations that some of the girls filmed were underage.

    The Principal performed in at least five adult films between 2004 and 2007, where he used the alias Lars Moebius.

  • Report this Comment On August 09, 2012, at 5:22 PM, cp757 wrote:

    One of the stundents of the Praque Film School is Eric Volkman.

  • Report this Comment On August 13, 2012, at 2:35 PM, Pkylie wrote:

    Both Zhenli Ye Gon and Siddaqui started gambling at MGM properties before Venetian went all out to poach them to play at the Venetian .

    In the case of Zhenli Ye Gon, MGM stopped taking his business when they suspected money laundering and hence potential legal problems for MGM. Zhenli Ye Gon was always afraid of getting busted.

    Venetian executives rest assured Zhenli Ye Gon he was protected gambling/laundering money at the Venetian because Bush/Cheney admin would never finger Adelson. Adelson owned the Bush/Cheney admin. Ari Fleisher, Karl Rove and Tom Delay were on Adelson's payroll at one time or another, and i believe, Karl Rove still is indirectly running a SuperPAC for Adelson.

    It was not because there were no legal transgressions to bust Las Vegas Sands prior to 2008, it was because Adelson was an untouchable by the Bush/Cheney Admin.

    At least 2 principals who were casino hosts at the MGM properties left MGM to accompany Zhenli Ye whenever he was in Las Vegas, and staying at the Venetian. One ended up becoming his mistress (Michele Wong).

  • Report this Comment On August 14, 2012, at 2:27 PM, Pkylie wrote:

    EVolkman, email me in private and i will give you leads to dig into the real story behind LVS's money laundering.

    Some of these principals are "consultants" to LVS and at least one is still a key "international" employee of LVS and with extensive links to HK's triads.

    Follow the money trial, Evolkman.

    Prior to laundering drug money at the Venetian, Zhenli Ye Gon 's only means of depositing drug money with the casinos was by wiring under $5 Million at a time. But a LVS consultant hired to assist Zhenli Ye Gon was able to physically transport much, much more in hard cash from Mexico city to Las Vegas aboard Adelson's fleet of private jets. What were INS doing at McCarran , turning a blind eye when all this was going on ?

  • Report this Comment On August 15, 2012, at 1:07 PM, cp757 wrote:

    picky lie I did not see a disclosure of your position in Las Vegas Sands stock. I own shares and have said so in the past. Its OK you don't need to respond or give me your e-mail address to exchange anything in private. Both of our actions are transparent.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1978301, ~/Articles/ArticleHandler.aspx, 12/18/2014 5:42:47 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement