Las Vegas Sands Misses Earnings: Buying Opportunity?

Las Vegas Sands (NYSE: LVS  )  delivered lower-than-expected earnings for the fourth quarter of 2013. But the company is still generating substantial growth for shareholders and trading at a material discount to industry peers such as Wynn Resorts (NASDAQ: WYNN  ) and Melco Crown (NASDAQ: MPEL  ) . Is this casino a good bet at discounted price?

A losing hand
Both sales and earnings during the last quarter came in below analysts' estimations, but that doesn't mean they were necessarily bad numbers. Revenues during the fourth quarter of 2013 increased by 18.8% to $3.66 billion, while analysts where expecting $3.72 billion for the period. Adjusted earnings per share were $0.72, a healthy increase of 33.3% versus the fourth quarter of 2012, but the number was also materially below estimates of $0.85 per share.

The main reason for the disappointment was falling revenues in Singapore, the company´s second biggest market, where total revenues fell by 8% during the quarter to below $660 million. Singapore has been a weak spot for the company lately, and management is increasing its marketing efforts to attract more visitors from the surrounding Southeast Asian region. However, there is little visibility regarding when or how Las Vegas Sands will be able to reinvigorate growth in the country.

Performance in Las Vegas was much stronger, with a sales increase of 25.1% to $385.7 million when considering the Venetian Las Vegas and the Palazzo resorts together. Pennsylvania did acceptably well, with an increase of 5.3% to $124.1 million in Sands Bethlehem revenue during the quarter.

Importantly, revenue in the key Macau region is still remarkably strong: Sands China, the company's majority-owned subsidiary that owns and operates its Macau properties, reported a 28% increase in revenues to $2.53 billion. Venetian Macau and Sands Cotai were the main growth drivers in the region, with revenues increasing by 36.3% and 61.1%, respectively, at these properties.

A smart player
In all, Las Vegas Sands is still generating healthy growth rates for investors, and the company's weakness is limited to Singapore. With Macau and Las Vegas delivering solid performance, an earnings report below analysts' estimations is hardly a reason to panic.

The company owns a leading market position in the attractive Macau Cotai Strip, which should generate plenty of growth opportunities in the years ahead. In 2015, Las Vegas Sands is planning to inaugurate the Parisian Macau, its fifth property on the Cotai Strip and its sixth in Macau overall. In the fourth quarter of 2015, the company is also expecting to inaugurate the fourth and final tower of the Sands Cotai Central, which will add 700 additional hotel and apartment units to its portfolio on the Cotai Strip.

In addition, Las Vegas Sands is exploring opportunities in countries such as Japan, South Korea, and Vietnam, where the company is well positioned to compete for projects as a leading operator in the Asian region.

A fair price
When compared with other casinos with a big presence in Macau, like Wynn Resorts and Melco Crown, Las Vegas Sands is looking attractively valued in terms of both trailing P/E ratio and forward P/E.

Data Source: FinViz.

Wynn Resorts reported better-than-expected financial performance for the last quarter of 2013. Total revenues increased by 18% versus the same quarter in the previous year to almost $1.52 billon, and adjusted earnings per share jumped by a remarkable 94% to $2.27 per diluted share. Both sales and earnings were above analysts' forecasts in the area of $1.42 billion for sales and $1.74 for earnings.

Melco Crown hasn't yet reported earnings for the fourth quarter of 2013, but performance for the third quarter of the year was quite strong, with sales rising by 24% to $1.25 billion and earnings per share growing by almost 74% annually to $0.33 per share. The number was also above analysts' forecasts of $0.31 for the quarter.

Wynn Resorts and Melco Crown are delivering outstanding performance, and that should merit a valuation premium. On the other hand, Las Vegas Sands looks like the best choice for contrarian investors looking to position their portfolio in a high-growth company at an opportunistic entry price.

Bottom line
Las Vegas Sands missed earnings expectations by a considerable margin, but that doesn't mean investors should necessarily avoid the company. On the contrary, the best opportunities many times come when a high-quality business suffers a temporary setback. Las Vegas Sands is still delivering healthy growth, and valuation is quite fair when compared with industry peers. This casino looks like a winning long-term play for investors.

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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 February 04, 2014, at 8:45 AM, nickjmerlino wrote:

    LVS , made billions , and did very well the analyst should bury there heads in the sand for putting a higher estimate on a company that did very well They are hurting the reputation of LVS and the other gaming stocks in Macau .

  • Report this Comment On February 04, 2014, at 1:24 PM, spokanimal wrote:

    Gaming 101, Mr. Cardenal:

    You begin your article focused on how LVS missed it's 85 cent EPS aggregate estimate with a 72 cent, adjusted EPS.

    Lets begin your orientation with the notion that when it comes to gaming, judging how a company is doing boils down to "volumes". This is often expressed as "drop", or, the amount of money gamblers are shoving into slots or "dropped" into a table-game slot when they "buy in".

    This is your best indication of how well a gaming company is attracting gamber's dollars which, in the end, is what matters most in terms of how they are doing competitively.

    In gaming, companies can have good luck and bad luck, just like gamblers do. LVS's Marina Bay Sands facility, which you dwelled on as "weak", actually had very bad luck. In their "VIP" gaming, they normally "hold" 2.7 to 3% of their "drop", but in Q4, they only held a horrible 1.92%. 4-Seasons on Cotai held even WORSE, at 1.77%.

    So, in gaming, you have to "normalize" results in order to really know how a company is doing, Andres. When you do that with LVS's Q4, their normalized EPS comes in at 87 cents and they would have actually BEAT aggregate estimates by 2 cents if their luck had been "normal".

    In fact, in Q3, they actually played "lucky" at LVS, and when you normalize Q3, it came out to EPS of 78 cents... in contrast to the 82 cents they reported raw.

    Look at it like you look at "same store sales" in the retail industry, Andres...

    ... and maybe check with Travis Hoium, as he may still be rather "green" in the gaming industry, but he's got a few years under his belt now, so his whipper-snapper gaffes are getting fewer and further between now.

    Best of luck, Andres.

    Spokanimal

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