Las Vegas Sands Is A Bad Bet

A little over a month ago, I penned an article discussing what I perceived to be the shortcomings of casino operator Las Vegas Sands (NYSE: LVS). Among my concerns were the risks I saw in the Las Vegas and Macau markets, where the company operates. I also mentioned that declining estimates could potentially scare off investors.

I'm still pretty bearish on the company and I think that the shares should be avoided in the near term. Why? Let's take a look at the company's second-quarter earnings release, issued July 30.

The Miss Comes at the Wrong Time
In the period ended June 30, the Las Vegas-based company reported a net loss under GAAP of about $8.8 million, or 2 cents per share. For those keeping track, that's much lower than the roughly $34.4 million, or 10 cents per share, it turned in during the same period last year.

However, according to the company's press release, "adjusted net income (excluding loss on disposal of assets, pre-opening expense, development expense and loss on early retirement of debt) was $30.9 million, or adjusted earnings per diluted share of 9 cents." That's better than the GAAP numbers, but unfortunately, analysts were looking for 12 cents per share.

A 3-cent EPS miss isn't the end of the world, but I do think it's bad news for the company in the short term.

All Bets Are Off
First and foremost, the company missed its first-quarter estimate and the fourth-quarter estimate before that as well. The market tends to have a short memory span, but not that short. As such, this miss may leave a bad taste in a lot of investors' mouths, which may cause fence-sitting investors or bottom fishers to back off the stock.

Second, I think that this miss could cause some anxious existing shareholders to bail, and may also exacerbate tax loss selling. As such, I think that the shares could get pummeled big time toward the end of the year. Just look at the precipitous decline in the stock's price on a one-year chart and think about the huge losses some shareholders have likely already racked up. (For related reading, see The Art Of Cutting Your Losses.)

It's a Vegas Problem, Baby
Las Vegas is a major revenue contributor for Las Vegas Sands. In fact, as per its earning release in the latest quarter, Vegas operations constituted about 31.3% of revenue.

In a rapidly growing domestic economy, that's probably OK. After all, Vegas has done quite nicely over the years. But given that American consumers seem to be quite reluctant to spend these days, I think the Sands' Vegas revenue stream could be in for some tough times.

In addition, some of the news the company is issuing about Vegas is less than encouraging. For example, as reported by Reuters on July 30, the company's COO William Weidner said in the recent quarter's earnings call that Vegas "may remain challenging for an extended period." It's also important to note that LVS is not entirely alone in its struggles in Vegas. In fact, other industry stalwarts including MGM Mirage (NYSE:MGM) and Wynn (Nasdaq:WYNN) have had their share of troubles in Sin City, as evidenced by recent earnings results showing declining year-over-year revenues from their Vegas operations.

So, because I don't see any real catalysts in the near-term horizon in that domestic market, I can't help but think that the stock is likely to languish going forward. I also think that there's a chance that we could see earnings estimates for the full year get dragged down by Vegas as well, which would only fuel the bearish case for this stock.

Bottom Line
Las Vegas Sands' second-quarter results were a bit of a turnoff. The miss comes at a bad time, and I'm concerned about the company's exposure to Vegas. Long story short, the stock looks like a bad bet right now, and I plan to avoid these shares.