Las Vegas Sands Corp. (LVS)

“Las Vegas is a poster child for the excesses of the real estate bubble. Land that was bid up to astronomical levels now sits vacant, strewn with half-finished projects that were abandoned when funding dried up. Overcapacity from the construction boom has made life difficult, even for experienced operators. Just look at Las Vegas Sands Corp. (LVS), which owns the glitzy Venetian and Palazzo mega-resorts. The shares ran up to the exorbitant price of $148 in October 2007 amid unbridled optimism. But they plummeted 99% over the next 18 months. By March 2009, you could pick up LVS for about the price of a cup of coffee—$1.38 per share. Clearly, the market overcorrected to the downside. The stock has since clawed its way back to $47. Bargain hunters who invested just $1,380 to scoop up 1,000 shares at the bottom are now sitting on a cool $47,000. 

“I was recently booking a trip to Las Vegas, and was encouraged to see standard Venetian hotel rooms priced at $289 per night midweek. Higher-end accommodations were $359 and up. Sure, I’d like to snag a room for half that, but the higher prices are indicative of a recovery. One of the quickest ways to gauge the health of a resort is revenues per available room (RevPAR), a metric that reflects both occupancy and pricing. If the resort is full (and not marked down just to fill beds), then demand is healthy. Keep in mind, those hotel visitors don’t just sit in their rooms. They will book show tickets, reserve time at the spa, have a few meals, and spend some time rolling the dice. Looking at the latest numbers from the quarter ended Sept. 30, Las Vegas Sands’ Venetian and Palazzo properties were 92.7% occupied at an average daily rate of $191, for a RevPAR of $177. That’s down from $244 at the end of 2007 before the bottom fell out of the market. But it’s a substantial improvement from the $149 at the beginning of 2011. As is usually the case, an uptick on the hotel side has translated into stronger revenue in both the retail and food and beverage categories. And on the casino floor, cash dropped at the tables bounced to $536 million last quarter, up from $476 million a year ago.

“But this isn’t about the Las Vegas properties. In fact, Sin City only accounts for about 10% of the company’s profits. Most comes from Macau, a vibrant gaming enclave and tourist destination a few miles from Hong Kong in the South China Sea. For years, Macau was referred to as the Las Vegas of China. But that’s not even a fair comparison any more—Macau’s gaming revenue overtook Las Vegas in 2006, and today its wins are about five times larger. Las Vegas may pocket about $6 billion in gaming wins annually. But Macau’s casinos collected $33.6 billion in 2011, an impressive 42% growth rate from 2010.

“Macau is the only venue in town (gaming on the mainland is restricted) so the region draws heavily from a population of 1.3 billion people that live within a short three-hour flight. Las Vegas Sands’ Venetian Macao resort has been a hit with both high-rollers and everyday players since it opened. Even in the first three months of 2009, when Macau’s total visitor count dropped almost 10%, the Venetian Macau saw a 14% increase (six million visitors). This glamorous resort, which anchors the famed Cotai Strip, almost prints cash. Players pumped $897 million into the casino’s slots in the quarter ended Sept. 30 (6.4% of which never came out). And rolling chip volume (a measure of VIP play) rose 15% from a year earlier to $12.7 billion, most of which was wagered on high-stakes baccarat tables. …”

This free excerpt is only a portion of Nathan Slaughter’s recommendation of LVS.

Nathan Slaughter, StreetAuthority’s Market Advisor, 1/24/12


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