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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week

Las Vegas Sands

January 29th 2016

Las Vegas Sands
NYSE Symbol: (LVS)
Industry: Casino operator
Price as of 1/28: $42.79

 

With the end of the month today we can say good riddance to January. The month will go down as one of the worst in history. A tough way to start the year, but the good news is the valuations are very compelling for stocks going forward. Very few stocks are working right now. The oils continue to struggle and may do so for a while longer. We may see some highly leveraged oil companies go under in the coming months which may drag the averages lower again. Ironically the high flying stocks like Google, Facebook and Under Armour are finishing the month on a high note, but that's about it. A sector trying to show some life is the casino and gaming operators. We featured Wynn Resorts back in October, a very volatile stock that's down 75% in the last two years. Since October we've seen the stock remain in a tight range between $75 and $50. On two occasions, the CEO Steve Wynn has stepped in and bought a combine $90 million worth of stock. Insider buying is one of my favorite indicators when a stock is beaten down as much as Wynn Resorts. Only time will tell if Steve Wynn is right, but there has been some encouraging signs that business may be stabilizing in Macau, China. This week we'll feature another casino stock that reported earnings and a dividend hike that may also be signaling that the worst may be over with the casino operators in China. The featured stock of the week is Las Vegas Sands. Wynn and Las Vegas Sands are not conservative stocks, but very cheap on a long term basis and Las Vegas Sands provides a dividend yield of over 6%. Investors will a long term horizon should be rewarded with these casino operators.

Las Vegas Sands, the world's largest casino operator with operations in Las Vegas, Bethlehem Pa, Macau, and Singapore reported earnings of 62 cents a share missing estimates by 2 cents. Revenue also missed estimates coming in at $2.862 billion. With the stock down 50% in the last two years no one is surprised that Las Vegas Sands missed estimates, but the encouraging thing is that sales and earnings may be bottoming. The Sands in China reported earnings up 7% before interest, taxes, depreciation and amortization of $575 million, ahead of Bloomberg consensus of $539 million. The bright spot was the Las Vegas, Nevada operations. Net revenue from Las Vegas operations, which comprise The Venetian Las Vegas and The Palazzo, increased 10.3% year over year to $400.1 million driven by a 24.6% increase in room revenues, and a 20.3% rise in food and beverage revenues. The company also opened a 400-room St. Regis Tower in Las Vegas on December 17 helping the casino operator draw in premium-mass consumers. Going forward, the company's growth story is about the opening of a new flagship casino the Parisian in Macau. The casino won't officially open until December, but the company is now hoping to have a partial open or soft opening this summer.

While Las Vegas Sands waits for the new Parisian to open and allow the new St Regis to start generating revenue, shareholders have a stock with compelling valuation and dividend. Las Vegas Sands trades for 17 times reduced estimates, 3 times sales, and that juicy 6.6% dividend yield. The Chinese economy remains a sticking point and a big question mark in the short term, but longer term the Chinese economy will report and the Chinese middle class is expected to double in the next 5 years providing more consumer spending for Macua, China and Las Vegas Sands and the Wynn Resorts.