Shorting Las Vegas

There are so many stocks that are just below where I want to short them; we have about 8 stop limit orders and all were within spitting range at the peak Thursday, but none hit - so I am going to make a reach with Las Vegas Sands (LVS)

I've had a limit short order for peer Wynn Resorts (WYNN) sitting here just over $34 but it's not biting; intraday high of $33.40.



Instead I'll try LVS - I'd prefer to short $7.70 but that just missed too, intraday high $7.67; I'm shorting just under $7.50 with close to a 3% stake. I will stop out at $8.02.

There is much joy and happiness because of "2nd derivative improvement" in the gaming sector. Just as with retailers, people are focusing on revenue and same store sales and not realizing the discounts going on; hotel rooms in Las Vegas are basically being handed out. Eventually we have to price companies on "profits" again, don't we? Not just on staying alive?

• Shares of casino stocks rose on Thursday after the Nevada Gaming Control Board released gaming revenues for May that showed a moderating decline. In a report posted to its Website, the state entity said Nevada gaming revenues were down 8.34 percent in May and off 13.71 percent for the year to date. Revenue on the Las Vegas Strip was down 6.36 percent for the month and down 15.31 percent for the year to date.
• The May result compared with a statewide gaming revenue decline of 14.07 percent that was reported for April 2009.
• Jeffrey Logsdon of BMO Capital Markets said in a client note that the statewide results were "clearly a less worse scenario" than the 13.7 percent decline seen in the year-to-date period.
• "Our channel checks continue to confirm that Memorial Day weekend was full, albeit at promotional room pricing," Logsdon said.

This type of stuff below from analysts is almost funny.... if not for the fact they get paid to put out these missives.

• Logsdon also noted that the Strip's dropoff was "a sentimental victory at least" when compared with the 15.3 percent year-to-date decline.

Sorry, let me dab my eye as my heart sighs in emotion at the uplifting story of a casino and it's puppy. What's the PE ratio for a Golden Retriever? Sorry, it is hard to google such information in between the tears streaming down my cheek. C'mon are we serious Mr. Logsdon? Sentimental victories? Talk about stretching for green shoots.

Again, things are terrible year over year but not as terrible as last month. Despite massive discounts. Buy stocks.

• "I think there are some expectations out there that this is potentially the beginning of a recovery for the industry," he added.

I have only tiny individual short exposure right now, so I'll replace the Potash short with LVS for now as I hope for another up day Friday to get some of these other shorts to lock in. In case the market sinks, I at least have something going on the short side.

Further, a slew of commercial REITs have fallen over (many we were obliterated shorting in April) and as we noted a week or so ago, insurance companies look awful. It's starting to feel all February 2009 again - except for the banks which the government says won't be allowed to fail (cue music from "We're Not Japan" here). Can't be long before the Fed rides to the rescue with Program# 218,105. One day they will figure out that, despite all the national treasure they wasted, prices will go where they will go. Nah, they'll never figure it out.

Disclosure:Short Las Vegas Sands in fund; no personal position

Comments

[Ryu Mei Co:]

Las Vegas will continue to get hurt and I would like to short them too. But I will still be caution and stay on the side line since the earning season just started..........

Jul 10 05:03 AM

[John Galt:]

I was just in Vegas and I certainly couldn't say it was "dead". There were more people than I thought but they had to be there getting mega deals ( like I did) that you'd never get during 08, 07, 06 years.

It wasn't just the hotels though, some of the shows weren't sold out, some of the Casino's had 10 dollar mins on a Fri/Sat night which shocked me. Yes, people blew away money, but it hardly looked like the same rate as the past.

Center city is there unfinished with idle construction cranes next to it. I'm pretty sure I didn't see them work even one day that I was there.

I would actually *like* to get long at Vegas at a firesale price but it doesn't look cheap enough for me. In fact, the short looks like a good idea as I don't see the discounts/consumer pain/ savings rate going in Vegas's favor any time soon.

Jul 10 06:09 AM

[TCK:]

After living in Las Vegas for over 5 years, I think I can say that the business model has failed. Over priced rooms and meals combined with horrible games is a bad strategy for success.

Their only minor achievement has been to convince the tourist that $100 per night for a room is now a "good deal ".

Jul 10 08:48 AM

[capital pains:]

Gaming stocks still remain a very high risk bet..The Strip is still very much in a depression state. Not recession, but far deeper than that.
As for the misleading "green shoots" figures for May: If one looks deeper into the May drop (less worse, as the mantra du jour continuously postulates), the handle was only less worse for one simple reason; May had some high profile events. Boxing and UFC championship fights. These events brought in some serious baccarat players. The casinos did so well on the baccarat tables, these particular takes skewed the entire picture. If not for baccarat winnings, the casinos would have shown double-digit declines for May as well. Slots, the mother's milk of casino gaming, showed a double digit decline. Table games, other than baccarat, showed severe drops as well.
Room rates are pathetically low. Although casinos are busy, they are filled with tourists who are not gamblers, do not spend money on shows, do not shop the high end stores, and look for $10 buffets. Low enders who do nothing to enhance revenues. These tourists add nothing to casino revenues. They're just bodies.
Wynn still is the healthiest, balance sheet wise. LVS is going to sell stock in Asia which contains only its Macau assets. The stock sale will enable LVS to complete its Singapore venture. The market loves that idea as reflected in the 10% rise in the price of LVS stock yesterday. MGM is a mess. Although financing issues appear to be back on track, City Center when completed will simply cannabalize their other strip properties. City Center will put a big hurt into all strip casinos.
And, with its 3,000 plus condos for sale in a dead real estate market, it doesn't seem to make any sense. As for their Macau venture, Pansy Ho turned out to be a zero for MGM. She brought no whales, she simply collects a fat paycheck. Pansy Ho turned out to be a leech actually. Macau's margins are razor thin for American casinos.And, one of Pansy's numerous brothers just opened "The City of Lights" casino which is blowing away its competition. Stanley Ho owns Macau, and through his siblings, Ho is basically sitting back laughing at the "stupid Americans" who thought they could make a serious play on his turf. Guess who wins that battle ?
All this is not to say that gaming won't be a fantastic investment in years to come. There were fortunes made already from the astronomical climb from lows to highs just in the past eight months alone. The gaming sector is most especially a risk/reward consideration for investors. What we can emphatically tell you is that Las Vegas is still on a respirator, with no signs of "green shoots" anywhere. Proceed at your own risk !

Jul 10 09:37 AM

[frugalandpu...:]

It's nice to see the apotheosis of bubble era mentality excess get obliterated.

Jul 10 09:52 AM

[BDHPlayer:]

$200 per night? I spent 9 days in Vegas for $211 including taxes.

In March I spent 3 nights at Wynn for free including $100 of slot credit. After running the slot money through the video poker machine, I cashed out for $90.

Only action they received was in the poker room which is not the type of margins they are looking for.


On Jul 10 08:48 AM TCK wrote:

> After living in Las Vegas for over 5 years, I think I can say that
> the business model has failed. Over priced rooms and meals combined
> with horrible games is a bad strategy for success.
>
> Their only minor achievement has been to convince the tourist that
> $100 per night for a room is now a "good deal ".

Jul 10 10:32 AM

[Swashbuckler:]

A friend of mine is an extremely LOW roller who has been going to Vegas 3 or 4 times a year for the past 19 years. He received in the mail 2 weeks ago comps(freebies) for roughly $10,000 in free rooms, meals, shows and gambling credits. He normally receives these "offers" that amount to probably $1500 and are spread over the course of an entire year, and are usually for the typical 2 to 3 star hotel. But this offer 2 weeks ago was a package deal from MGM, Mirage, Bellagio and a couple other top hotels. And he can use any of these comps or all of them as he chooses. He told me there has to be only one explanation--Vegas is hurting BAD.

Jul 10 10:33 AM

[TraderMark:]

Interesting comments everyone. I've read about a ton of discounting going on but wow, some of the things you are talking about imply not only no profit but some big losses. Even Steve Wynn was saying with the new hotel he'd have to cut rates dramatically.

So far the LVS short working well, up 8% since short put on yesterday. Wish I had kept my Potash short as well.

These are very news driven so I won't overstay my welcome - still hate the group for the next 15 months or so but I expect some huge rallies as well from time to time like we saw March/April on "hope".

Jul 10 12:01 PM

[Valley Boy:]

I went to Las Vegas for a convention in May. There were two conventions in the hotel going on simultaneously and were well attended. The hotel swimming pool area wasn't crowded but not deserted either; this meant that some of the rooms were occupied. The sit-down restaurants had only a few diners. The buffets, on the other hand, had plenty of diners. The little shops in the casinos seemed to be deserted. The gaming areas in the casinos didn't attract much patronage. Most of the little strip malls fronting the commercial arteries seemed to have plenty of traffic with cars parked in their lots. There were less pedestrians on The Strip than I remember in years past.
The convention business in Las Vegas probably will continue as an economic mainstay.

Jul 10 01:42 PM

[DaveW:]

Hi Mark,
Regarding casinos, any idea why Isle of Capris Casinos (ISLE) has done so well? The volume since late April has been impressive.

Jul 10 02:16 PM

[TraderMark:]

Not familiar with ISLE.


On Jul 10 02:16 PM DaveW wrote:

> Hi Mark,
> Regarding casinos, any idea why Isle of Capris Casinos (seekingalpha.com/symbo...)
> has done so well? The volume since late April has been impressive.

Jul 10 04:03 PM

[Boris Yeltsin:]

Mark - good luck with your shorting. I wish you well.

I'm long LVS and look forward to buying more if you and other shorts can drive down the price further.

But you should be aware of the bigger fundamental picture with Sands, especially given that short interest is almost 20% and newsflow may surprise on the Macau front soon if a PE deal is suddenly announced and the HK IPO aborted.

Negative sentiment towards Las Vegas and low US confidence may well continue to cause LVS to fall in the short-term. Las Vegas is truly suffering. But from the perspective of my, perhaps longer, investment horizon, that doesn't matter.

The US is now a minority of LVS's revenues and earnings, and will become an even smaller contribution next year. The company should really be renamed "Asia Sands" or perhaps just "Sands".

I recently visited both Macau and Singapore and can assure you that Macau is doing fine, even if visitation is softer than last year, and LVS continues to gain market share in what is probably the best long-term market in the world, as China becomes wealthier. Already Macau is much more significant than the US in terms of earnings to LVS and that will only increase post Cotai, which will entrench LVS as the strongest player in Macau - a remarkable achievement by LVS in just a few short years post the removal of Stanley Ho's monopoly.

Right now LVS has a market cap of US$4.5bn, excluding warrant exercise. The equity value (not Enterprise Value...) that brokers believe is achievable at IPO in HK for the Macau assets alone is ~US$5bn. Yes, extraordinaly, more than LVS's current market cap. If you have have seen the China IPO market lately (eg, 200-500x oversubscriptions) or have seen GS IPOs fly in HK before you'll appreciate this is far from crazy. Even bearish UBS thinks the Macau assets alone may generate US$500m pa in net income in 2010.

Turning to Singapore, which just topped out the three hotel towers under construction at Marina Sands:

www.marinabaysands.com/

This may prove to be the most profitable casino in the world, given the duopoly structure, strategic position and much lower gaming taxes than Macau. Sands itself previously "suggested" US$1.2bn in annual EBITDA for Singapore, significantly more than the Venetian in Macau. See page 36-37 of the below:

library.corporate-ir.n...

Sands is going to wind up with the two best gaming assets in Asia - the Venetian/Cotai in Macau servicing China and Marina Sands servicing South East Asia and India. Even if the US is worthless, if LVS survives just a few more months, which I think is not in serious doubt (just look on Bloomberg at the current yield on their corporate bond), LVS is very, very cheap at these levels and could always sell assets if needed - eg via HK IPO or minority interest in Marina Sands.

The leading Analysts in the stock (Sanford Bernstein, ML and UBS) all expect LVS will avoid debt covenant breaches and the mean Analyst share price target is 53% above the current share price. And this is all notwithstanding very bearish forecasts for Marina Sands Singapore by the analysts (eg, US$300-600mn EBITDA), which I assure you will be wrong. Once Singapore is complete in Jan/Feb, LVS may be generating US$1bn of net income, meaning LVS may now be trading at 4.5x PE.

Adelson in a recent interview said he would be buying towels for the research analysts. To wipe the egg off their faces when it is shown how off they are. I'm betting on Adelson not the Analysts.

www.cnbc.com/id/158402...

Right now, LVS is a stock traded by US investors based on impressions of Las Vegas, and covered heavily NY analysts who are fairly clueless about Asia and in several cases prepared their forecasts back in October 08 and March this year, with the backdrop of Lehman collapsing etc. New research coverage and sources of buying are likely from Asia and I suggest you don't over-stay your welcome on the short-side. Over-hyped Wynn may be a better way to play Las Vegas troubles.

Still, if you can help push LVS to back below $5 per share, you and I will both be glad. Adelson might start buying again too.

Boris

Jul 11 04:24 AM

[Boris Yeltsin:]

I should correct an error in my note above. I said that short interest as a percentage of free float was almost 20%. It is actually 23%, which makes this an even nicer potential short-squeeze.

Referring to the latest NYSE short interest data (see below), I calculate that of the top 100 shorted stocks on NYSE, there are only 4 stocks with higher short interest ratios as a percentage of free float than LVS. They are Freddie, AIG, Fannie, MGM and Citi. The last two are the only "non-zombies" of the 5 and have short interest ratios only slightly above LVS.

www.nyse.com/financial...

Shorting LVS looks like a crowded trade to me. Let's see.

Jul 11 07:00 AM

[Chuck Kasparov:]

Boris, wow, thanks! Great info.

Jul 16 06:29 PM

[TraderMark:]

Boris great piece - I anticipate being long LVS someday on the Signapore launch. Macau I don't like as much - who knows what will eventually become of that area... maybe China will want to takeover those locales.

I will probably pay a higher price than you when I do get long but hopefully I'll do something with the money in the near term.

I won 7-8% short LVS and lost 7-8% trying it again on the Intel gap up day. So flat for the week on 2 tries with LVS.


On Jul 11 04:24 AM Boris Yeltsin wrote:

> Mark - good luck with your shorting. I wish you well.
>
> I'm long LVS and look forward to buying more if you and other shorts
> can drive down the price further.
>
> But you should be aware of the bigger fundamental picture with Sands,
> especially given that short interest is almost 20% and newsflow may
> surprise on the Macau front soon if a PE deal is suddenly announced
> and the HK IPO aborted.
>
> Negative sentiment towards Las Vegas and low US confidence may well
> continue to cause LVS to fall in the short-term. Las Vegas is truly
> suffering. But from the perspective of my, perhaps longer, investment
> horizon, that doesn't matter.
>
> The US is now a minority of LVS's revenues and earnings, and will
> become an even smaller contribution next year. The company should
> really be renamed "Asia Sands" or perhaps just "Sands".
>
> I recently visited both Macau and Singapore and can assure you that
> Macau is doing fine, even if visitation is softer than last year,
> and LVS continues to gain market share in what is probably the best
> long-term market in the world, as China becomes wealthier. Already
> Macau is much more significant than the US in terms of earnings to
> LVS and that will only increase post Cotai, which will entrench LVS
> as the strongest player in Macau - a remarkable achievement by LVS
> in just a few short years post the removal of Stanley Ho's monopoly.
>
>
> Right now LVS has a market cap of US$4.5bn, excluding warrant exercise.
> The equity value (not Enterprise Value...) that brokers believe is
> achievable at IPO in HK for the Macau assets alone is ~US$5bn. Yes,
> extraordinaly, more than LVS's current market cap. If you have have
> seen the China IPO market lately (eg, 200-500x oversubscriptions)
> or have seen GS IPOs fly in HK before you'll appreciate this is far
> from crazy. Even bearish UBS thinks the Macau assets alone may generate
> US$500m pa in net income in 2010.
>
> Turning to Singapore, which just topped out the three hotel towers
> under construction at Marina Sands:
>
> www.marinabaysands.com/
>
> This may prove to be the most profitable casino in the world, given
> the duopoly structure, strategic position and much lower gaming taxes
> than Macau. Sands itself previously "suggested" US$1.2bn in annual
> EBITDA for Singapore, significantly more than the Venetian in Macau.
> See page 36-37 of the below:
>
> library.corporate-ir.n...
>
>
> Sands is going to wind up with the two best gaming assets in Asia
> - the Venetian/Cotai in Macau servicing China and Marina Sands servicing
> South East Asia and India. Even if the US is worthless, if LVS survives
> just a few more months, which I think is not in serious doubt (just
> look on Bloomberg at the current yield on their corporate bond),
> LVS is very, very cheap at these levels and could always sell assets
> if needed - eg via HK IPO or minority interest in Marina Sands.
>
>
> The leading Analysts in the stock (Sanford Bernstein, ML and UBS)
> all expect LVS will avoid debt covenant breaches and the mean Analyst
> share price target is 53% above the current share price. And this
> is all notwithstanding very bearish forecasts for Marina Sands Singapore
> by the analysts (eg, US$300-600mn EBITDA), which I assure you will
> be wrong. Once Singapore is complete in Jan/Feb, LVS may be generating
> US$1bn of net income, meaning LVS may now be trading at 4.5x PE.
>
>
> Adelson in a recent interview said he would be buying towels for
> the research analysts. To wipe the egg off their faces when it is
> shown how off they are. I'm betting on Adelson not the Analysts.
>
>
> www.cnbc.com/id/158402...;play=1
>
> Right now, LVS is a stock traded by US investors based on impressions
> of Las Vegas, and covered heavily NY analysts who are fairly clueless
> about Asia and in several cases prepared their forecasts back in
> October 08 and March this year, with the backdrop of Lehman collapsing
> etc. New research coverage and sources of buying are likely from
> Asia and I suggest you don't over-stay your welcome on the short-side.
> Over-hyped Wynn may be a better way to play Las Vegas troubles.<br/>
>
> Still, if you can help push LVS to back below $5 per share, you and
> I will both be glad. Adelson might start buying again too.
>
> Boris

Jul 16 08:03 PM

[Boris Yeltsin:]

Mark - thanks. And well done on making money on LVS. I doubt many others on the short side would have fared so well over the past few days.

The stock is hugely volatile but within a year I expect it will be at least twice the current price. The short interest peaked last week at levels last seen when LVS looked like a possible bankruptcy risk. Best to wait until SI levels go down again before shorting; I'm sure you'll get another opportunity or two or three before before Singapore opens and the analysts scramble to upgrade their numbers.

It looks like Adelson is trying to renegotiate the Macau loan covenants and may not do an HK IPO at all if he can avoid it.

I wasn't so keen on Macau given concerns on competition but interestingly the opening of City of Dreams next door has actually helped the Venetian Macau, and if the surrounding Cotai area is developed by LVS (as Adelson is trying to) the whole area will be by far the best place to go in Macau. And it will be almost all owned by LVS - the next best thing to a regulatory monopoly.

I doubt China will do anything to terrible to LVS, more likely they will just allow gaming in other parts of China, creating more competition. By then, Cotai will have a big headstart.

Hopefully Adelson has learned some lessons on the dangers of leverage from the last few months. I'll still give him plenty of credit for being a visionary.

Boris

Jul 16 09:40 PM