Las Vegas Sands Corp. (NYSE: LVS)

Las Vegas Sands Corp. (LVS) operates casino properties in the United States and Macau, China. The U.S. properties include The Venetian Resort Hotel Casino and the Sands Casino Resort Bethlehem. The Macao properties include Sands Macao, The Venetian Macao Resort Hotel and The Four Seasons Hotel Macao.

Founded in 1988, the Company is headquartered in Las Vegas, Nevada.

Source: Reuters.com, SEC Filings.

Financial Summary

Analyst Consensus

The mean of 17 analysts polled by Thomson Reuters rate shares of LVS a “Outperform.”

Analyst Recommendations and Revisions

Source: Reuters.com

Source: Reuters.com

Historical Surprises

Source: Reuters.com

Investment Highlights

Market Overview

The resort and casino industry is beset with several problematic issues, all affecting its bottom line and hopes of growth in both the short term and intermediate term due to severely receding economic activity and potential for the outbreak of pandemic viruses. For the foreseeable future, the industry is expected to shrink in revenue, with consolidations, downsizing, mergers and acquisitions, as well as industry deleveraging expected to be consistent in duration with overall slumping economic activity.

The U.S. economy remains the key factor of the resort and casino industry outlook. While the economic statistics such as GDP, employment, consumer spending, real estate purchases and industrial production appear to be slowing in their respective declines, the overall economy is still softening. Consumer spending was encouraged by high asset prices in the real estate and equities markets, which have recently shown only marginal improvements in the case of the equities markets but still show deteriorating asset values in the residential and commercial real estate markets.

Fossil fuels prices and the potential for the spread of the H1N1 virus are two other critical factors of the industry. After reaching $147 per barrel of oil in late June of 2008, then dropping to $35 per barrel in December, oil has since recovered to $79 per barrel. Fossil fuels analysts cite the plunge in oil to the liquidation of contracts by hedge funds during the credit and liquidity crisis which began in earnest in September of 2008. As the global economy stabilizes, the oil price is expected to firm, said the Energy Information Administration, as hedge funds and institutions redeploy investment capital into emerging markets, new technologies and commodities. Levels of air travel and available discretionary spending are severely affected by the cost of energy, especially in the airline, travel, leisure and resorts industries.

The fear surrounding the H1N1 virus stems from its observed ability to spread during the hot summer months is expected to continue to weigh on the resort and casino industry as more and more consumers delay or cancel plans for travel. Speculation of the virus’ ability to spread during more conducive conditions of the “flu season” has alarmed some scientists to this virus’ potential for mass infection. The United States government has given indications of taking the spread of H1N1 very seriously through continuously elevated budgets focused on contracting private industry research and development initiatives for fighting the strain, since last spring.

Company

For at least four quarters, LVS has embarked on a cost-cutting and efficiency measures in an effort to right-size its casinos in Las Vegas and Macao in response to declining revenue from all segments of its business. The Company has increased its cost-cutting goal to more than $500 million in annually savings. In the Company’s latest conference call, management intends to seek further efficiency measures and cuts beyond the $500 million goal set earlier in the year. As of the second quarter close of 2009 ended June 30, the Company has achieved the elimination of $345 million in operating costs, or 69%, toward its $500 million goal.

The Company’s plan to complete development at its Singapore and Bethlehem properties is on schedule, with the Bethlehem property successfully opened on May 22, and the Singapore property development and pre-opening activities still on target for the grand opening anticipated during the first quarter of 2010.

Efforts to improve liquidity at the Company have shown improvement, as management renegotiates its loans and focuses on delivering higher adjusted EBITDA from more profitable revenue streams.

In the latest quarter, the Company’s Las Vegas properties delivered EBITDA of $78 million in the second quarter, down from $107 million for the same quarter last year. The decline in revenue was attributed to lower hotel revenue, which was primarily due to reductions in rates in the upper-end market at its Las Vegas and Macao properties.

The Company’s strategy is to maintain healthy occupancy rates at its hotels, focusing on the less rate-sensitive end of the market, such as midweek corporate and group meeting revenue, as well as favoring its high-end, high-margin baccarat business. Overall table-drop totaled $386 million for the second quarter, down 5.4% from $408 million posted for the equivalent quarter last year. Slots revenue reached $48.2 million, down 4% from the same period last year.

Overall, the Company is in a defensive posture, striving for profitability from rightsizing and cost-cutting tactics. Top-line growth may be elusive for the foreseeable future. Its Macao operation is expected to deliver better results in the longer-term due to its Asia location and the outlook for the economies of the East. The Las Vegas operations, on the other hand, appear to be less clear until evidence of private investment in the U.S. economy replaces record public investment which is temporarily slowing the decline in consumer credit and spending.

Recent News Affecting LVS

On October 27, casino competitors Wynn Resorts (WYNN) and Boyd Gaming (BYD) reported third-quarter results showing that the industry still struggles. Wynn beat Wall Street’s estimate of 15 cents by 18 cents (33 cents per share), but a closer look revealed that reported revenue of $773.1 million (topping estimates by $30 million) included Wynn Encore in Las Vegas which recently opened December 2008. Wynn’s year-over-year earnings dropped substantially from 49 cents to 28 cents on a GAAP basis. Although the Associated Press reported that Wynn showed room, food and beverage, and entertainment revenue climbed, gaming revenue dropped excluding Wynn Encore. Executives for Wynn said in a call to investors that conference room bookings and high-end domestic business also remain weak.

Earlier reports that the Chinese government loosened travel restrictions to Macau haven’t helped casino revenue as expected. Now there are reports that the Chinese have again tightened travel to Macau, casting uncertainty on the ability of Macau’s casinos to grow the top-line during periods of less than optimum traffic from the mainland China. A gaming analyst for Macquarie Securities recently told Bloomberg that the Chinese want Macau to grow but not at a rate that would pose problems containing illegal activities on the island. Analyst Steven Kent of Goldman Sachs said Wynn may not attract renewed investor demand until more clarity becomes available regarding rumored visa restrictions to Macau imposed by the Chinese government.

Further evidence of troubles in the resort gaming industry came from Boyd Gaming. Boyd Gaming disappointed investors with a lower-than-expected 9 cents per share earnings for the third quarter, citing weak traffic and overall spending at its casinos. Robert La Fleur of Sasquehanna Financial Group said that the Las Vegas local markets are off substantially including downtown.

LVS operates casinos in Las Vegas and Macau. Casino stocks dropped double digits on the news of Wynn Resorts and Boyd Gaming poor earnings. Shares of makers of slot, video poker and other games fell sharply as well.

Technical Analysis

LVS trades below its 13-day moving average. This bearish sign is significant because the moving average are negatively trending as well.

The MACD for LVS currently indicates a bearish signal. The MACD is below the signal line, a 9-day moving average of the MACD. The MACD is also below the critical level of 0, which implies the past price action had been negative. Overall, the chart is bearish.

Comparative Analysis

Source: Thomson Financial

Insider Trading Activity

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