Las Vegas Sands (LVS) is like a slot machine that has paid out more times than expected, and will continue to pay out in the future. In the last year, the company has offered a special dividend, increased the quarterly dividends, and pledged to continue an aggressive share buyback program. Given strong cash flow generation ($3.2 billion estimated for fiscal year 2013) and a strong balance sheet (~1.7x net debt to EBITDA), management can easily fulfill their plan to further return value to shareholders. Investors will find owning shares of Las Vegas Sands to be the furthest thing from a gamble.
Further growth in existing markets
Macau is expected to overtake the United States as the world's largest gaming market by 2015 with total revenues of $65 billion. By 2020 gaming revenue is expected to nearly double to $108 billion annually. Las Vegas Sands operates several properties in the region, including the largest casino in the world, The Venetian Macau. This property also happens to be the sixth largest building in the world by floor space.
Las Vegas Sands transformed Singapore's emergence as a casino gaming center with its $8 billion casino property, Marina Bay Sands, which opened in 2012. This property continues to offer Asian and international VIP players a luxurious gaming experience in a country that is expected to replace Switzerland and become the top financial hub in the world by 2015, according to CNBC.
As the Asia Pacific region continues to boom and offer a more "local" experience for Asian gamblers, many of these individuals will be diverted to Las Vegas Sands properties instead of traveling much further to Las Vegas.
$47 million settlement immaterial
The company recently reported a settlement with federal prosecutors related to an ongoing anti-money laundering investigation. As part of the settlement, the company will pay $47 million and avoid criminal prosecution. $47 million represents only about $0.06/share, and the company has already put into place many of the additional internal compliance programs necessary for continued compliance.
In Macau, the $2.7 billion Parisian Macao is scheduled for a late 2015 opening, with piling and podium construction already under way. As for Madrid, the process on "EuroVegas" continues at a slower pace with a 750 hectare site that will include up to six casinos and twelve hotels. The project's first phase is set to be completed by 2017. The company continues to target 20% cash on cash return for all projects.
Longer term, the company plans on building casinos in untapped markets such as Japan, Vietnam and South Korea.
How does Las Vegas Sands stack up?
Much like Las Vegas Sands, MGM (MGM) enjoys a thriving Macau business. The company owns a 51% stake in MGM Macau, which is surprisingly gaining traction in the all important Macau market. MGM Macau saw mass market revenues grow 34% year over year in the second quarter of 2013. MGM is gaining shareholder attention through its commitment to spend $56 million in renovations and improvements at MGM Macau as well as building a second property (valued at $2.5 billion) which is currently under construction.
MGM is investing heavily in the Macau market and also appears to be very active in scouting locations all across Asia. The company is active in scouting a location in Japan following the country's 2020 Olympic win. Tokyo's successful bid for the Olympics fueled speculation that the country would approve gambling facilities and hotels that can be used during the games. The company's CEO had this to say regarding Japan: "There's a growing consensus there that gaming will be expanded, and we plan to participate in that process. I think our operating and development expertise as well as our ability to be good partners are great advantages for us"
Finally, the company is also anticipating a "very large opportunity" in South Korea, as the government is considering legislation to legalize gambling resorts.
Not all gaming companies offer shareholders the same long term growth prospects that Las Vegas Sands and MGM offer. Caesars Entertainment (CZR) opened a golf resort in Macau, but a report from Reuters indicates that the company is looking to sell the property to a company called Pearl Dynasty Investments for $438 million. This appears to be a sign that the company has no interest in investing in the region.
Caesars, the largest casino operator in the U.S, needs these funds to pay down debt. This has limited the company's ability to expand to more lucrative international markets, such as Macau. An un-named hedge fund that invested in Caesars' debt said "They would need a meteor to destroy the earth" to avoid filing for bankruptcy protection. With Macau casinos generating more than six times Las Vegas casinos' revenues, companies with no international exposure like Caesars offer shareholders smaller prospects for future growth. The company appears to be "going all in" with a last bid effort to expand into an uncertain, risky (and not yet legal in all states) online gambling. Even if online gambling is legalized, the competition will be fierce with many competitors set to enter the stage. Of interest, Las Vegas Sands CEO described online gambling as "a toxin that all good people should resist."
Las Vegas Sands is a unique company that offers both value in terms of dividends and buybacks and future growth prospects. I am not aware of many companies in the stock market universe that hold market leading positions in many of their respective key global markets in the way that Las Vegas Sands has. With gaming revenues set to explode in the Asian markets over the coming years, and new projects in Europe, investors can reasonably assume to see shares of Las Vegas Sands at the very least outperform the S&P 500 for years to come.