Las Vegas Sands Losing Its Luster

Gaming results are in, and the one big shocker is the general disappointment of Las Vegas Sands (NYSE: LVS  ) . The world's largest gaming company is still a steady performer in Macau, but Singapore is underperforming expectations by a long shot and the stock has moved sideways as a result.

To make matters worse, competitors are trading at lower multiples and have more impactful growth projects on the horizon. This stock simply isn't what it used to be. Don't believe me? Take a look at Las Vegas Sands' returns versus the S&P 500 (INDEX: ^GSPC  ) over the past two years.

LVS Total Return Price Chart

LVS Total Return Price data by YCharts.

Problems in Singapore
Marina Bay Sands was supposed to be the most profitable casino resort in the world, and for a period of time it raked in cash for Las Vegas Sands. Yet recent performance at Marina Bay Sands shows not only a halt to growth, but results that are starting to decline rapidly. Casino revenue was down 27.8% in the quarter, food and beverage revenue was down 6.3%, and convention, retail, and other revenue fell 19.4%. Even with an increase in room and mall revenue, overall revenue fell 21.1% in the third quarter to $625.5 million.  

Adjusted-property EBITDA, which is what I watch closely because it approximates cash flow, was even worse, falling 37% to $260.8 million. It's important to point out that low hold contributed to this decline, and that the resort may have made another $75 million with normal hold, but it's also important to point out that low hold is a trend in Singapore.

The biggest number that raises a red flag in Singapore is rolling chip volume. This is the volume of play high-rollers gamble, and this volume declined by 29.5% in the third quarter. While win percentage will fluctuate quarter to quarter, volume tells you what direction overall gaming is headed in, and it's in a serious decline.

Add all of this up and you can see that EBITDA is headed in the wrong direction in Singapore.

It's a good thing that Macau hasn't gone through the same decline.

Macau holds steady
The chart above shows that operations in Macau have been steady over the past 12 months. In its recent quarterly release, the company touted an increased market share in Macau of 19.3% from 14.3% a year ago. This shouldn't come as a surprise since Las Vegas Sands opened Sands Cotai Central in the past year, so it should see an increase in market share as a result.

Sands Cotai Central is the big question mark in Macau. The resort opened the second phase of a three-phase opening at the end of the quarter, so it's hard to assess the impact on results. The first phase generated just over $50 million of EBITDA, which wasn't anything to write home about. I've built in $1 billion in EBITDA from this property in prior valuation models, and we have yet to see if it will meet or exceed that target.

Once fully open, Sands Cotai Central will be one of Las Vegas Sands' three most profitable properties and will hopefully live up to expectations. The challenge is that high expectations are already built into the stock.

Not the best value in gaming
The challenge for investors is that the market has already priced in all of Las Vegas Sands' growth opportunities in the near future. The enterprise (including debt and equity) trades at 11.2 times trailing EBITDA at current levels, and if we project $1 billion in annual EBITDA for Cotai Central, the multiple drops to 9.0 times.

This is at the high end of what I might pay for a gaming stock, but it's also exactly the same multiple that Melco Crown (Nasdaq: MPEL  ) and Wynn Resorts (Nasdaq: WYNN  ) trade at. The difference is that we have results in the bag for these two companies, and at Las Vegas Sands we're projecting future results that may not come true.

There are also growth opportunities to consider. Each of these three companies, along with MGM Resorts (NYSE: MGM  ) and SJM, has a resort on Cotai in the works, and Melco Crown is also part-owner of a resort in the Philippines. But the impact of a Cotai resort on Wynn and Melco Crown, which are both much smaller than Las Vegas Sands, will be much higher than it is on Sands.

So if valuation is a tie, then growth breaks the tie and Las Vegas Sands falls behind.

Foolish bottom line
If you think that Singapore's troubles are short-term and that Cotai Central will exceed $1 billion in annual EBITDA in the near future, you may be able to see value in Las Vegas Sands' shares. Personally, I'd rather bet on the results we've already seen and stick with competitors Melco Crown and Wynn Resorts. The bottom line is that the shine has long left Las Vegas Sands.

Want an even more in-depth look at Las Vegas Sands? Learn about all the opportunities and the risks at the company in our brand-new premium report on Las Vegas Sands. We're providing a full year of analyst updates to go with it, so make sure to claim your copy today by clicking here.

 

Read/Post Comments (5) | Recommend This Article (2)

Comments from our Foolish Readers

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  • Report this Comment On November 08, 2012, at 1:33 PM, spokanimal wrote:

    Sands has been piling on expenses in Q2 and Q3 with an eye on streamlining the income statement this winter. The acute, negative normalization (EPS would have been 8 to 9 cents higher with normal luck) just piles onto that realtiy.

    When LVS sees a quarter that's not shaping up, they tacitly "pile on". There's evidence that the receivables allowances in Singapore were overstocked given the impression their low hold would make on the street.

    Similarly, Sands liberally piled cotai central's phase 2 pre-opening expenses onto the unit's income statement alongside revenues that were confined only to phase 1 operations. A number of costs that could have gone either way with phase 2 in terms of expensing vs capitalizing were summarily expensed given that people like Mr. Hoium here were going to write articles like this anyway...

    ... so why not give people like Hoium reason to project an even worse, over-the-shoulder look at LVS in to an equally worse view of the future when, in fact, much of what he sees in the past was meant to shift the better news TO the future.

    Ditto with Venetian's extensive, Q3 VIP renovations. Many of us had hoped that they would be completed in Q2 but a lot of them remained idle and under construction in Q3 as well as their junkets eagerly await the opportunity to run them full-bore in Q4. Even Steve Wynn aluded to the much improved "competition" in VIP when discussing his own rolling chip numbers with analysts.

    So once again, we see people like Mr. Hoium here focusing on the past to ride the downward momentum that resulted from it...

    ... whereas a contrarian might prefer to see just how much of Q2 and Q3 might represent a spring that doesn't look so hot while it's coiling.

    Spokanimal

  • Report this Comment On November 08, 2012, at 7:24 PM, mbablitz wrote:

    I see Marina Bay Sands as a $1 billion dollar per year bottom line bonus. It is the world's most profitable casino in a $6 billion annual market shared by only one other casino. Compare that to the Las Vegas Strip which has 38 casinos sharing a $6 billion dollar market. Growth is nice but a steady $1 billion per year is good enough, especially when only 1 other company is allowed to have a casino there for at least 8 more years.

    Marina Bay Sands also owns a mall that has a property value that is growing every year. It will likely be sold for $4 or $5 billion in 2017, maybe even sooner if Singapore allows it. Rooms at the MBS hotel are also filled at a rate of over 90%.

    Macau has a $33 billion market shared by 6 casinos. LVS has approximately 20% of that market which should grow with table count. That table count will go up by 200 tables making $9000 per day, in Jan 2013. LVS will dominate market share growth because the Macau gov has limited table growth to 3% per year and LVS will have the only new casinos for 3 more years.

    I like my chances with LVS's existing income producing properties for the next 3 years over WYNN's, Melco's and MGM's proposed properties that won't be built for 3 more years.

  • Report this Comment On November 08, 2012, at 8:58 PM, cp757 wrote:

    Travis loved WYNN at 165 a share in July 2011 and wrote this story on July 19, 2011

    The big ding on Wynn's earnings was a $135 million donation made to the University of Macau Development Foundation. The payments will be made over 10 years, but this is a big charitable contribution Steve Wynn decided to make on behalf of shareholders. It left me scratching my head a bit.

    Expecting better luck

    One interesting note from the press release yesterday was Wynn's increased expectations from what it will win in the mass-market category in Macau. Wynn is increasing mass-market table game win percentage expectations to 26%-28%, from 21%-23%. For a look inside exactly what this means, I explain gambling odds here, but in short, you can take this as customers sitting at tables longer and losing more than Wynn had expected previously.

    For a comparison, in Las Vegas, Wynn expects to win 21% to 24% of table game drop. Don't let anyone tell you Asian gamblers aren't a far better gambling market than Americans.

    Travis could have said the 135 million was a bribe but he scratched his head.

    Travis has never pointed out that market share is going down on WYNN in Macau and moving to Las Vegas Sands.

    WYNN was 165 when he was pumping it in 2011 but the stock went down.

    You are still "Arrogant" and "Biased". You need to look at yourself and ask why you are the way you are. JMHO

  • Report this Comment On November 09, 2012, at 1:02 PM, TMFFlushDraw wrote:

    @cp757

    I'm getting tired of setting the record straight.

    Below is the article from July 19, 2011 that you reference. In no way in this article did I say I was buying WYNN or preferred WYNN over LVS at the time.

    http://www.fool.com/investing/international/2011/07/19/wynn-...

    In fact, I conclude with "I would still put my bets on companies with the most possible exposure to Asia. Las Vegas Sands (NYSE: LVS ) , Melco Crown (Nasdaq: MPEL ) , and Wynn Resorts are all jockeying for gambling dollars, and they'll all win big as gaming revenues increase in Macau."

    The truth is, I wrote an article very subtly titled "It's Time to Buy Las Vegas Sands" on June 24, 2011.

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

    In this article I outlined why LVS was the best buy at the time. Since that date it has outperformed WYNN but not MPEL.

    To cover all of the bases, I also did not make a CAPS call on WYNN in July 2011.

    If you're going to bash my articles please do so with factual calls and cite your articles with links. I know you have ready access to all of this information.

    Travis Hoium

  • Report this Comment On November 09, 2012, at 2:15 PM, cp757 wrote:

    Travis you are so full of it . That artical "It's Time to Buy Las Vegas Sands" This is what you said

    But shares have struggled recently. So far this year, Las Vegas Sand's stock is down 14%, while Macau competitor Melco Crown (Nasdaq: MPEL ) is up 75% and Wynn Resorts (Nasdaq: WYNN ) is up 28%. That share performance has given an opportunity for investors who are looking for the best gaming stock on the market. Here are the three reasons I like Las Vegas Sands.

    You pump WYNN and Melco every chance you get.

    You are still "Arrogant" and "Biased". You need to look at yourself and ask why you are the way you are. JMHO

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