Las Vegas Sands Should Continue To Come Up Aces

| About: Las Vegas (LVS)

It has been a while since I wrote anything about my position in heavyweight gambling stock Las Vegas Sands (NYSE:LVS). However, numerous positives for the company and the stock have happened over the last month or so. Despite solid results and favorable recent developments, the stock is selling at the same levels as the highs it originally hit in the first quarter. This gives long-term investors a solid entry point to acquire this fast growing gambling behemoth.

Recent Positives:

  • Gambling revenue in Macau rose almost 18% in August. This strong growth is being driven by the mass market more than the VIP crowd, which bodes well for Sands.
  • Sands China had 5.6mm visitors in July, up more than a third from same level last year.
  • The company recently resolved a money laundering probe by the federal government. This removes a longstanding concern and removes an overhang on the stock.
  • Online gambling is starting to gain some traction with a pact between Nevada & New Jersey speculated to be reached next year. This could be a new avenue of growth for the company if this median proliferates.
  • Consensus earnings estimates for both FY2013 & FY2014 have ticked up over the past two months.
  • Finally, when the company reported earnings late in July; quarterly earnings came in at 72 cents a share, four cents above consensus. Overall revenues were up more than 25% Y/Y.

Valuation & Investment Case:

Las Vegas Sands has grown revenues at better than a 25% annual rate over the past five years. During that time span, earnings growth has posted better than a 35% average yearly increase. The company is tracking to better than a 20% gain in revenues and an approximate 35% earnings increase this fiscal year. Less than 17 times forward earnings is more than reasonable to pay for this growth. The stock is selling near the bottom of its five-year valuation range based on P/E.

The company has a strong balance sheet and pays a 2.5% yield. The company just started paying a dividend in 2012 and has already increased the payout 40% since the initial payout. Its retail properties could be worth as much as $10B and are not fully reflected in the stock price. Finally, the company has done a marvelous job growing operating cash flow over the past few years (See Chart).

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Disclosure: I am long LVS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.