October 18, 2013
Recommendation: B-rated Buy
Welcome to the Stock of the Day for October 18, 2013. Shares of casino operator Las Vegas Sands Corp. (LVS) are rising following its surprisingly strong third-quarter earnings announcement. But with the company betting on Macau, a burgeoning gambling destination located on the southeast tip of China, is it worth taking a risk on LVS in 2014? Find out now.
Company Overview: The Las Vegas Sands Corp. is, as its name suggests, a major player in the Las Vegas gambling and entertainment scene. The company operates the Venetian hotel in Las Vegas, which offers a 120,000-square-foot casino and a 4,000-room suite hotel, as well as a shopping, dining and entertainment complex. The company also operates The Palazzo Casino and Sands Expo Center trade show and convention center. Outside of Sin City, the company is also expanding operations in Spain, Macao and Singapore.
Earnings Rundown: Compared with Q3 2012, the company posted an 80% jump in profits. Adjusted earnings came in at $681 million, or $0.82 per share. Analysts had predicted earnings of $0.76 per share so Las Vegas Sands posted a 7% earnings surprise. Over the same period, net revenue advanced 32% to $3.57 billion. This also topped the $3.47 billion consensus estimate by 3%. The company also announced that it is hiking up its dividend by 43% for the 2014 calendar year to $2.00, or $0.50 per quarter. At current prices, this works out to a 2.8% dividend yield, making LVS' dividend the second highest in the Resorts and Casinos industry.
Competition Breakdown: Speaking of which, when it comes to casinos and resorts, the competition is fierce. On the Las Vegas strip, Las Vegas Sands competes with the likes of Caesar's Entertainment Corp. (CZR), MGM Resorts International (MGM) and Wynn Resorts Ltd. (WYNN). And while Las Vegas Sands dwarfs the others in terms of market cap, MGM Resorts International. is the current favorite of institutional investors, as shown by its stronger Quantitative Grade. All four of the companies are B-ranked buys due to decent fundamentals. However, if you're really looking for strong profit potential, I'd venture abroad and look at Melco Crown Entertainment Ltd. (MPEL), which is shooting to become the leader of Macau's booming gaming industry.
Current Ratings: Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. For much of the past year, LVS has languished at a B-rated Buy or a C-rated hold. However, the Conservative stock has recently risen in my rating system as institutional investors have taken an interest in LVS in anticipation of Q3 earnings. So buying pressure has advanced; this is reflected by the stock's B-rated Quantitative Grade. And Las Vegas Sands has been successful at firming up its balance sheet. Right now, LVS receives top marks for sales growth, earnings growth, return on equity and analyst earnings revisions. However, the company could still improve its operating margin growth and cash flow. So LVS receives a B for its Fundamental Grade.
Bottom Line: As of this posting, October 18, 2013, I consider LVS a B-rated Buy.