3 Reasons Las Vegas Sands' Stock Could Rise

Locations in Singapore and Macau could help drive Las Vegas Sands' stock higher over the next decade.

Aug 19, 2014 at 1:12PM

Since the lows of the Great Recession in 2009, few companies have made as spectacular a comeback as Las Vegas Sands (NYSE:LVS). The company that was once on the brink of bankruptcy is now the world's largest gaming company by market cap and revenue and the market leader in Asia.

LVS Chart

LVS data by YCharts.

There's no guarantee any stock will rise long term, but these are the three drivers of Las Vegas Sands' long-term stock growth.  

1. Macau's mass market

The gaming market in Macau has long been dependent on VIPs, high rollers who have accounted for around 70% of revenue. VIPs can be a fickle market in Macau because limitations on visas, crackdowns on corruption, and fears of an economic slowdown in China have all reduced demand from VIPs in the past. The good news is that Las Vegas Sands is moving its focus to the mass market of Asian gamblers. 

The mass market is proving to be a big growth market for Macau as the Chinese middle class grows and infrastructure in Macau improves. A high-speed train from Guangzhou to Macau, increased ferry ports that serve Hong Kong, and even an underwater road to Hong Kong are making it easier for middle- to upper-class gamblers to reach Macau.

Macau Map

Las Vegas Sands is taking advantage of the mass market growth through its dominant position on Cotai, the area of reclaimed land in Macau that is a gaming and entertainment district. As you can see above, the company has three major resorts operating on Cotai, with another -- The Parisian -- under construction.

Cotai is attracting mass market gamblers because of its thousands of hotel rooms, entertainment options, and gaming. With a central location in the area, Las Vegas Sands is positioned to grow along with the mass market.

2. Singapore's big-time profits

One of the often-overlooked strengths of Las Vegas Sands is its Marina Bay Sands resort in Singapore. The property is highly profitable, and it's 100% owned by Las Vegas Sands, unlike Sands China, in which it holds a 70.2% stake.

Results have been choppy at Marina Bay Sands over the years, in part because bad luck has hit the resort. Casinos expect to win a certain percentage of the bets made, which I discuss in detail here, and when results stray from that percentage quarter to quarter, it can result in volatile EBITDA (a proxy for cash flow), as you can see below. For example, win from VIP play, which is expected to be 2.7% and 3% of rolling chip volume, was 2.53% in Q2 2013 and 3.45% in Q2 2014.

But even with volatile results, Marina Bay Sands in Singapore is still highly profitable and even in an unlucky quarter is generating over $250 million in EBITDA.

Las Vegas Sands Ebitda Chart

Source: Las Vegas Sands' earnings releases.

I think there's potential for long-term growth at Marina Bay Sands, but even if there isn't, the property spits off cash like crazy. That is helping to improve Las Vegas Sands' balance sheet and dividend. Long term, this is a property investors want to own -- and it could drive the stock higher.

3. Asia's long-term growth

The gaming industry is just starting to penetrate an Asian market with over 3 billion eager gamblers just a six-hour flight from Singapore and 3 billion a five-hour flight from Macau. But we may just be at the beginning of the region's growth. 

Japan has long been looking to gaming as a potential revenue generator, and Las Vegas Sands would be one of the favorites to win a gaming bid there. Korea has also been discussed as a growth opportunity, and Las Vegas Sands' management would likely be willing to spend billions to build there. 

Asia's economy continues to grow, and as it does, consumers want to gamble and be entertained, which is what Las Vegas Sands does best. It already has a presence in Macau and Singapore, two of the industry's most coveted gaming regions, and could add more in coming years as gaming opens up. No matter what, Asia's long-term growth will drive results for Las Vegas Sands.

Top dividend stocks for the next decade
Las Vegas Sands is also now a consistent dividend stock, a new phenomenon in gaming. For investors, a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Travis Hoium has no position in any stocks mentioned. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers