Las Vegas Sands Corp. (LVS) is set to report second quarter 2014 results on Jul 16, 2014. Last quarter, it posted a 4.30% positive surprise. Let’s see how things are shaping up for this announcement.
Growth Factors for this Quarter
Las Vegas Sands is one of the leading companies in the gaming and lodging industry and earns a better part of its revenues from Macau, China. However, one cannot ignore the headwinds faced by the company in its operating region. China's crackdown on illegal money transfers, credit growth concerns, potential for tighter restrictions on visas and an impending smoking ban in casinos is expected to pose a threat to Macau’s gaming revenues in the soon-to-be reported quarter and beyond.
Reportedly, the company has significantly underperformed the broader market in the recently reported quarter due to a slowdown in Macau, which has lost steam with high-stake gamblers curtailing spending amid a cooling Chinese economy. Gross gaming revenue in Macau increased 10.6% in April and 9.3% in May while it declined 3.7% in June – the first decline since Jun 2009.
Las Vegas Sands' revenues declined in the first quarter due to a sluggish domestic market, which continues to remain a concern for the company. Moreover, the Las Vegas market was hard hit by recession. Given the current scenario, it would be difficult for the company to surpass expectations.
Nevertheless, the company’s superior business model, extensive non-gaming revenue opportunities, high quality assets and attractive property locations would help it withstand any economic downturn. Also, the company is concentrating on renovation and promotion of its Las Vegas properties in order to drive segment performance. We expect its strong brand portfolio, solid mass market revenues and increasing traffic in Macau to bode well for the company. Therefore, we expect these strong fundamentals to offset the impact of current macro issues to some extent.
Earnings Whispers?
Our proven model does not conclusively show that Las Vegas Sands is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Negative Zacks ESP: Las Vegas Sands’ ESP is -1.12% since the Most Accurate Estimate stands at 88 cents per share, while the Zacks Consensus Estimate is higher at 89 cents.
Zacks Rank #3 (Hold): This lowers the predictive power of ESP because the Zacks Rank #3 when combined with a negative ESP makes surprise prediction difficult. Note that the Sell rated stocks (#4 and 5) should never be considered going into an earnings announcement.
Stocks to Consider
Other stocks in the gaming industry and the broader consumer discretionary sector that have both a positive earnings ESP and a favorable Zacks Rank are:
MGM Resorts International (MGM), with Earnings ESP of +36.4% and a Zacks Rank #3.
Pinnacle Entertainment Inc. (PNK) with Earnings ESP of +8.3% and a Zacks Rank #3.
Choice Hotels International Inc. (CHH) with Earnings ESP of +2.0% and a Zacks Rank #2 (Buy).
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