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Las Vegas Sands: The House Wins Again

Source: Las Vegas Sands.

Las Vegas Sands (NYSE: LVS  ) announced earnings for the first quarter of 2014 on Thursday. The company is generating remarkable performance on the back of booming gaming demand in Macau, outperforming competitors such as Wynn Resorts (NASDAQ: WYNN  ) and Melco Crown (NASDAQ: MPEL  ) in that key market. Las Vegas Sands also has ambitious plans for expansion in the years ahead.

Las Vegas Sands is on a roll
First-quarter sales increased by 21.4% year over year to a record $4.01 billion, which was above the analyst consensus of $3.84 billion. Adjusted earnings per share jumped by 36.6% to $0.97, also beating analysts’ average estimate of $0.92 per share.

Booming gambling demand in Macau is a major growth driver for the company, and the latest earnings report confirms that business is stronger than ever in that market.

Sands China delivered a whopping increase of 34.7% in total net revenue during the quarter, to $2.72 billion. Adjusted property EBITDA in Macau (a special administrative region of China) grew 49.8% to $938 million, while net income increased 66% to $751.9 million during the quarter.

Net revenue in Singapore grew by 5.1% to $835.4 million, while adjusted property EBITDA in the country increased 9.7% to $435.2 million. Performance was quite disappointing in Las Vegas, though, as sales fell by 7% to $382.7 million and adjusted property EBITDA declined by 29.7% to $79.7 million.

All in all, Macau is the main driver of Las Vegas Sands' performance. The company's growth in that key market is nothing short of impressive, which is having a big positive impact on overall sales and earnings.

Beating the competition
Las Vegas Sands is the leading player in Macau, but that does not mean the company is immune to the competition. In a cyclical industry with high fixed costs and elevated capital requirements, it’s always important to monitor the competitive landscape.

Melco Crown is scheduled to report earnings on May 8 and Wynn Resorts on May 1. But at the moment Las Vegas Sands still looks like a winner when comparing numbers for the fourth quarter of 2013 in the region.

Sands reported a 28% increase in Macau revenue to $2.53 billion for that period, while Melco Crown announced a marginally smaller increase of 27% in sales to $1.39 billion and Wynn Resorts delivered a 24.6% increase to $1.12 billion.

Both Melco Crown and Wynn Resorts are smaller than Las Vegas Sands, which should mean higher potential for growth. However, Sands is demonstrating its ability to outperform the competition in its main market, and that says a lot about the company and its management team.

Growth opportunities
Demand in Macau is expected to continue growing at a remarkable rate due to multiple factors. A rapidly growing Chinese middle class with increased disposable income, more efficient and affordable transportation infrastructure in the region, and more attractions for different kinds of travelers should generate sustained demand growth in the years ahead.

Las Vegas Sands has ambitious expansion plans in Macau; The Parisian Macau is scheduled for inauguration in late 2015, adding 3,000 rooms to the company's capacity in the region. In total, Sands intends to have more than 12,600 rooms in Macau by 2017, representing a leading market share of 44% among gaming operators by that year.

In addition, Las Vegas Sands is leveraging its experience and reputation as a successful operator in Asia to explore expansion opportunities in countries such as Japan and South Korea.  According to Chairman and CEO Sheldon Adelson on the recent conference call, “activity levels in Japan remain robust,” and “Korea has also shown increased activity levels." 

Considering what the company has achieved in China, investors have good reasons for optimism. If Las Vegas Sands manages to successfully replicate that experience in other Asian markets, it will pay off nicely for shareholders.

Foolish takeaway
Las Vegas Sands delivered impressive results for the first quarter of 2014, and the company appears positioned for sustained growth in the years ahead while outgrowing competitors such as Wynn Resorts and Melco Crown in Macau. This well-run casino operator looks like a winning bet.

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Andrés Cardenal

Andres Cardenal, CFA is a tenacious researcher of the best investment opportunities around the world. Andres is an economist and CFA Charterholder living in Buenos Aires, Argentina. Naturally flavored. Follow me on Twitter for more investment ideas:

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