Why Las Vegas Sands' Second-Quarter Earnings Created a Buying Opportunity

Second-quarter results released by Las Vegas Sands fell below its guidance, but the market overreacted to still-incredible growth. Here's why Las Vegas Sands is now even more of a buy thanks to the lowered price.

Jul 22, 2014 at 2:00PM

 Sands Macau With
Sands has posted incredible growth over the past five years, and this recent dip creates a good entry for Foolish investors.
Photos: Las Vegas Sands, Yahoo! Finance; Editing: Bradley Seth McNew

Las Vegas Sands (NYSE:LVS) second-quarter earnings release, a couple weeks ahead of those from competitors Wynn Resorts (NASDAQ:WYNN) and MGM Resorts International (NYSE:MGM), disappointed many analysts and investors with revenue and EPS below expectations. The stock is down slightly following the release. However, this is ridiculous and here's why this only presents a buying opportunity for long-term investors.

Sands Logo

Las Vegas Sands

Las Vegas Sands missed expectations, despite good results
The expectations had called for $0.90 per share and Sands missed this by $0.05 with $0.85 cents per share, on total revenue of $3.62 billion. Yes, Las Vegas Sands missed expectations slightly, but consider that those expectations formed following record breaking first-quarter results from Las Vegas Sands that were by far the highest in the industry, well ahead of those of Wynn Resorts or MGM Resorts, and the company has much better future prospects as well.

As for the results in this second-quarter earnings release, Las Vegas Sands posted a net income increase of 27% year over year. Investors are scoffing at 27% income growth? That's ridiculous. With net revenue up nearly 12% to $3.62 billion YoY, EBITDA in Macau up 21.9% YoY, and adjusted earnings per share up 29.7% YoY, it seems that analysts got so used to Sands' incredible profit each quarter that this incredible growth left them jaded.

But expectations were priced in, right? Wrong
Shares of Macau-focused gaming companies have been beaten down over the last few months as issues involving regulation and the slowing of the VIP gaming segment had been linked to lower gross gaming revenue at times. Thus, even though Las Vegas Sands, Wynn, and MGM Resorts reported incredible first-quarter earnings, their prices have still not performed very well since April. However, these issues are just noise, not good catalysts for long-term investment analysis.

Adelson Via Bloomberg

Sands CEO Sheldon Adelson has led the company to industry-high results, and there are more reasons than ever to continue believing in his guidance. Photo: Bloomberg

Most importantly, some analysts have pointed to the slowing of VIP growth as a negative for the casino growth of Las Vegas Sands and Macau. However, if anything this is a good thing. While Sands and others are losing ground with VIP gamers, they are focusing on the mass-market segment and making massive gains there, which will be the driving force for higher profits in Macau for years to come.

Therefore, if the incredible profits posted in the first quarter have not added much to the stock price of Las Vegas Sands, and the second-quarter expectations have been beaten out of the stock in the noise of week to week gross gaming revenue, then that means the the recent dip following the small miss on EPS expectations presents a buying opportunity for investors who are looking to get in on what remains incredible growth.

Las Vegas Sands won in Q1, likely to win again in Q2
Las Vegas Sands led the field with first-quarter 2014 revenue of a record $4.01 billion, up over 21% year-over-year. MGM Resorts came in a not-so-close second with revenue growth of barely more than half of that of Las Vegas Sands, and Wynn came in third in this group. 

 

Wynn Resorts

MGM Resorts

Las Vegas Sands

Q1 Net Revenue Growth YoY

9.7%

12%

21.4%

Q1 Net Revenue Growth YoY

TBA

TBA

12%

Share Price in April

$219

$24.33

$76

Share Price in July

$204

$25.5

$73.8

P/E (TTM)

27.6 249.8

24.1

P/E est. 2015

21.4

38.7

16.7

Source: Yahoo! Finance

A key reason why Las Vegas Sands has been able to post such huge results is through diversified revenue growth in Asia. Sands' Asian revenue also includes what it collects from its operations in Singapore. Though its Singapore operations did not provide much help this quarter, diversification across the 88% of Las Vegas Sands' revenue that comes from Asia will help the company remain strong and steady. Wynn, by contrast, gets 75% of its revenue from Macau so it lacks the diversification of Las Vegas Sands. MGM only gets 37% of its revenue from Macau, with most of the company's global revenue still coming from Las Vegas and the US Northeast region.

Marina Bay Sands Via Sands
Source: Las Vegas Sands

Steven Wynn Introduces His New Cotai Casino

CEO Steve Wynn introduces the vision for the new resort on the Cotai strip back in 2012. Photo: Reuters

One more reason to believe: The coming casinos
The coming $4 billion Wynn Palace on the Cotai Strip, with an expected opening date within 18 months, is an exciting catalyst for Wynn investors. The brand new resort will include a 1,700-room hotel-casino, a performance lake, and much more. Likewise, MGM is planning its own new casino resort in Macau which will open during the following year, 2016.

Parisian With Actual Construction Progress Via Sands Earnings

Construction progress of Las Vegas Sands' Parisian. Photo: Las Vegas Sands

However, once again Las Vegas Sands is making a bigger bet with an even more impressive resort. The company's new Cotai resort, the Parasian , is set to open in mid-2015 and it will include over 3000 new rooms. Because Las Vegas Sands has done a better job of recruiting mass-market players to come to its casinos, it will need places for those gamers to sleep. This is one more sign that Las Vegas Sands is making bigger bets on the trends that are driving growth in Macau, and will continue to win from these trends over the next few years.

Foolish takeaway
Analysts and investors who were waiting for Las Vegas Sands to have another showing like it had in the first quarter are now disappointed because Sands missed on EPS. However, now that the stock is down slightly following this news, Foolish long-term investors should not miss the buying opportunity that this has created. With strength in mass-market gaming, the new Parisian resort coming online next year, what should still be industry-high revenue growth this quarter after MGM and Wynn report their second-quarter earnings, and most importantly, still very strong second-quarter income growth, Las Vegas Sands still looks like a great bet. 

Investors can bet on future growth with Las Vegas Sands, and with Apple too
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Bradley Seth McNew owns shares of Las Vegas Sands. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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