On Nov 28, 2014, we issued an updated research report on Las Vegas Sands Corp. (LVS).
Las Vegas Sands posted third quarter 2014 earnings of 84 cents on Oct 15 that increased 2.4% year over year owing to lower operating expenses. Meanwhile, earnings were in line with the Zacks Consensus Estimate. Revenues of $3.53 billion missed the Zacks Consensus Estimate of $3.67 billion by 3.8% and declined 1% year over year due to a weak performance in Macau.
The downside reflects a slowdown in gambling in Macau with high-stake gamblers curtailing spending amid a cooling Chinese economy. Also, the nationwide crackdown on corruption in China compelled Macau officials to impose restrictions on VIP gamblers in order to stop billions of dollars from being siphoned off illegally from mainland China to Macau.
In fact, gross gaming revenues in Macau declined in all the three months of the quarter. Notably, gross gaming revenues in Macau for the month of October plunged 23% – marking the biggest drop in a month since U.S.-based casinos began operating in the Chinese market in 2004. Moreover, the current protests in Hong Kong and the smoking ban in casinos are expected to dampen the company’s results in the upcoming quarters.
Nevertheless, though the VIP business in Macau has been affected by a slowdown in the Chinese economy, mass gaming volumes and non-gaming revenues have strengthened over the past few quarters. We believe that the company’s Macau properties would benefit highly from the increasing demand pattern and the flourishing mass market segment, going ahead. In fact, the mass business in the region is growing at 15% per year and is expected to post higher revenues, going forward.
Besides, the improvements in traffic and infrastructure will aid the company’s existing as well as upcoming projects like Sands Cotai Central resort and Parisian Macao. These properties would increase the company’s dominance in the Cotai strip, a region where Las Vegas Sands already has a considerable presence.
Also, the company is concentrating on renovation and promotion of its Las Vegas properties in order to drive segment performance. Though tourism in Las Vegas has not yet reached the pre-recession level, it is on its way to recovery, which can be said as Las Vegas is on track to break its annual visitation record. Given these expectations, we expect the properties in the region to generate higher revenues, going forward.
Las Vegas Sands presently has a Zacks Rank #3 (Hold).
Other Stocks to Consider
Some better-ranked stocks in the gaming industry sector include Isle of Capri Casinos, Inc. (ISLE), Monarch Casino & Resort Inc. (MCRI) and Penn National Gaming Inc. (PENN). All these stocks carry a Zacks Rank #2 (Buy).
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