Las Vegas Sands (LVS -5.94%) 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 (WYNN -3.79%) and Melco Crown (MLCO -7.89%). 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.
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.
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.