Wednesday, May 4, 2011

Is Las Vegas Sell-Off a Buying Opportunity?

Shares of the casino operator (LVS) slumped as much as 6% in the morning session on May 3, 2011 as earnings and revenues disappointed, largely due to disappointing results from Marina Bay Sands. Although an EBITDA of $284.5 million  are nothing to sneeze at for a casino that is opened for only a little over a year, investors have high hopes for the gaming industry in Singapore, expecting $325 million EBITDA . Contributing to the shortfall was an unexpectedly low table hold, which is the measure of wins as a percentage of cash and markers deposited into a drop box of a gaming table and also according to the company a very conservative allocation of account receivables.

In the meantime, the company's properties in Macao including Venetian China, Sands China, the Plaza Casino and Four Season Hotel continued to deliver amazing growth in terms of both gaming and hotel revenues. The company's old base in Las Vegas continued to recover after the 2008 financial meltdown.

While Singapore might have failed to excite investors in the first quarter, it is no doubt by far the most promising gaming destination in the world. It generated an EBITDA of $1 billion in its first year of operation in 2010 even without a full-year of operation. How promising? Just think about having the entire Las Vegas strip gaming business split up between only two casinos, Marina Bay Sands and Resort World Sentosa.

In short, the price reaction of LVS after the earnings report was typical of a stock priced for perfection. The long-term prospect of LVS remains intact.  Market capitalization relative to EBITDA  is around 16, compared to 16.83 its closest US competitor, WYNN, is a tad cheaper considering its invaluable asset in Singapore.

That said, this valuation is not completely innocent. Litigation risks remain with LVS. In March 2011, the company received a subpoena from the SEC requesting documentation regarding its compliance with the Foreign Corrupt Practices Act which bars bribes to foreign officials. “Any determination that we have violated the FCPA could have a material adverse effect on our financial condition,” said the company.
Later in April, the company’s subsidiary, Sands China, was investigated by Hong Kong regulators for using inappropriate leverage against Macau government officials with the intention of accelerating the sale of apartments at its Four Seasons Hotel. It is also alleged that the company was spying on the officials with the purpose of collecting negative information to pressure the officials.

"When the smoke clears I am absolutely a thousand percent positive that there won’t be any fire below it.” That was the response given by Sheldon Adelson, the CEO of LVS. On a related note, when subpoenaed for his email, Adelson responded by saying that he does not use email. He is not an email- kind- of guy. If you ask me, that is a red flag.

You may find related articles
3 cases for LVS
Is Macao giving casinos a second wind

Disclaimer: This blog is for general information purpose only. Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.

Disclosure: The blog author does not own any of the above mentioned stocks in her personal account as of May 4, 2011.

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