Casino giant Las Vegas Sands (NYSE:LVS) had a near-death experience during the credit crisis and saw its stock fall to less than $2 per share in early 2009. Investors that anted up at that time have seen the stock jump back close to $50 per share, which is still well below highs closer to $140 per share back in 2007. The volatility demonstrates the feast-or-famine market dynamics in the industry, but right now the company and a number of rivals are feasting on overseas growth in Asia, which could continue to boost their prospects considerably. (For more stocks similar to the Las Vegas Sands, check out Top 5 Stocks Back From The Dead.)
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Third Quarter Recap
Revenues advanced 26.2% to $2.4 billion. Las Vegas Sands operates six primary casino units that consist of three properties in Macau, Las Vegas properties that consist of the Venetian and Palazzo casinos, the Marina Bay Sands in Singapore, and Sands Bethlehem in Pennsylvania. Each unit reported top-line growth, with a notable 63% jump in revenue from Marina Bay Sands that grew to account for almost 33% of total revenue. The Macau properties combined to account for almost half of the total top line and saw respectable growth ranging from 6 to 11%. Las Vegas trends improved markedly, with an increase of about 20% to account for roughly 14% of total sales.
Total expense growth was modest at 16.5% given the rapid sales growth and pushed operating income up 65% to $632.6 million. Net income more than doubled to $353.6 million, or $0.44 per diluted share. Interest expense continued to be large at $70.8 million, but was down from $76.7 million in last week's quarter. As of quarter end, the company reported total debt of nearly $10 billion, but net debt closer to $6 billion given $4 billion in cash on the balance sheet.
For the full year, analysts project sales growth of nearly 34%, total sales north of $9 billion, and earnings of $1.91 per share. (For more on Great Company Or Growing Industry?)
The Bottom Line
There is little question that Las Vegas Sands has experienced extremely impressive top-line growth in recent years. Over the past five years, revenues are up more than 31% annually and have experienced a meteoric rise from $2.2 billion in 2006. Growth in Asia, including Macau and Singapore, have been the key growth drivers and the company currently has its sights set on Korea and Japan, which are debating whether to legalize resort gaming.
The only potential downside is that the company's growth depends on being able to tap the capital markets for the billions required to build its giant casinos. Since 2006, capex has averaged well over $2 billion annually, which has been far below what it generates in operating cash flow. The aggression has paid off well for shareholders, but almost brought the company to financial ruin after a spending spree in 2007 that saw the build out of the Palazzo in Vegas and Venetian Macau. The effective closing of the capital markets because of the credit crisis and plummet in domestic gambling caused the company to scramble for funding from Goldman Sachs (NYSE:GS) and financing from founder and chairman/CEO Sheldon Adelson.
That being said, there could be significant upside potential in the stock given the vast potential to continue building casinos in Asia. Wynn Resorts (Nasdaq:WYNN) has also been a pioneer in the Asia build out, as has Hong Kong-based Melco Crown Entertainment Ltd. (Nasdaq:MPEL). Las Vegas archrival MGM Resorts (NYSE:MGM) has been slower to take advantage of international growth, due in good part to its own lofty debt levels and concentration in hard-hit Las Vegas. Investors willing to roll the dice that Asian growth will continue unabated may see Las Vegas Sands as a good deal at 19 times forward earnings. Wynn also trades at a similar forward P/E. Others may see the stakes as too high given that politics and huge financing costs are major obstacles to deal with in the industry. (For more on P/E ratios, see Can Investors Trust The P/E Ratio?)
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At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.