The casino market is growing across the globe. Las Vegas Sands Corp. (LVS) is one of the leading companies in the market and is expanding its operations worldwide to bolster future profits and returns. The focal point of this report is to determine how the company's growth operations will impact the top and bottom line of the company and how it will be translated into the price of the stock.
Las Vegas Sands has shown a very strong historical performance over the years. The following graph shows the annual revenue growth of the company based on the data from September 2009 up until September 2013. The total revenues of the company have grown at an astounding CAGR of approximately 32% over this time frame and this trend is expected to continue into the future as the company is making intelligent investments and is growing its operations in the high-growth geographical regions.
The company is distributing its profits among the shareholders through dividends and share buybacks. The dividends paid by the company are not only higher than what its peers are paying but they also show a continuous increase over the years. The company expects to increase its dividend payments by 42.9% next year which seems achievable as the company's future profits are expected to rise as well.
Over the past three quarters of 2013 the company has reduced its total number of shares outstanding by approximately 4.34 million shares. Both of these trends are expected to continue into the foreseeable future and generate returns to investors.
Source: Company Presentation
Continuous growth was indicated by the earnings of the company and with a consistent and continuous share buyback the EPS of the company has taken a direct impact. The EPS of the company has grown consistently over the years as shown in the graph below.
Industry Outlook and Las Vegas Sands
The global casino market is exhibiting exponential growth with Asia being a key driver because of its casino industry and the fact that gambling is becoming an important leisure activity in that region. According to research, Asia is expected to become the second largest casino region by the end of 2014 just behind the US market.
Within Asia, Macau is deemed the "Mecca" for gamblers where hotels and resorts show an astounding occupancy rate of 87%. Macau alone is expected to show a 20% growth rate in the current year. Further research indicates that 96% of the total expected growth this year will be distributed among the current market players instead of new entrants. These growth figures and estimates highly favor Las Vega Sands since it operates profitable casinos within the region. The company's revenue generated from Macau has shown a high growth rate over the past three quarters of 2013. More visitors are expected to pour in as the country is literally "bridging" the gap between Hong Kong and Macau. The bridge is expected to be completed by 2015 and will reduce the commute time from about three hours to just half an hour. This will hugely benefit the casino market in Macau as the bridge is expected to boost the frequency of visits by tourists and people residing in these areas by manifold thus further improving revenues generated by the casino market in this region.
Besides Macau in China, Japan is the second largest emerging market in terms of casinos. Up until now Japan was inaccessible for casino investments. It is highly likely though that the country will soon open the gates for casino owners around the globe as the country has submitted a bill backed by Prime Minister Shinzo Abe on December 5th, 2013 to legalize gambling in Japan. It is highly probable that this bill will be passed around the same time as the Tokyo 2020 Olympic Games. It is important to highlight the fact that the Japanese gambling market does not have to be built from scratch. The country has an existing ¥19 trillion ($182 billion) thriving gambling market. Further promising growth is expected to come from Chinese and Korean tourists. Las Vegas Sands has mentioned Japan as a prospective expansion site (among others) and the earnings of the company will jump significantly as soon as the country legalizes gambling and the company makes an investment there.
Las Vegas Sands has also mentioned Korea as a prospective site for further expansion of the company's operations. Korea is the third largest casino market in Asia with a projected size of $2.4 billion. Researchers predict that the Korean casino market will experience an average growth rate of 7% over the next few years. Therefore, if the company successfully makes an investment in Korea it will have a sizeable impact on the company's earnings.
The US casino market is also expected to improve in the current year and is expected to continue to grow into the future as the GDP growth rate is expected to increase to 3% in 2015 and is further projected to rise to 3.1% by 2020. Prospective profitability of the US casino market can also be gauged by the fact that the US unemployment rate is following a decelerating trend with the unemployment rate anticipated to decline to 6% by 2015. The declining unemployment rate and escalating GDP growth rate are enough evidence to predict that consumer spending is expected to increase and will also benefit the casino market. Higher consumer spending will positively impact the revenue base and profit margins of the company. However, the US casino industry is highly competitive and is highly reliant on the economic situation of the country since the market has matured in that region. Las Vegas Sands is exceedingly diversifying its operations away from the US and entering high growth markets to benefit as one of the first few entrants and capture a significant portion of the emerging casino markets.
Las Vegas Sands is strategically strengthening its operations across the globe and is mainly targeting high-growth areas to bring about growth in the top and bottom lines of the company and generate high returns for its investors. The company has instituted dividend payouts and share buyback policies that are hugely benefiting its investors when compared to the S&P returns. To continue to uphold its high return policies the company is making investments that are expected to facilitate growth in future profit margins.
Investors of the company can realize further returns from the price appreciation of the company's stock that is going to increase as a function of its growth operations and escalating profitability. I believe that Las Vegas Sands presents itself as a good investment opportunity and will generate enormous returns in the long term especially if the Japanese government passes its gambling legalization bill.