Las Vegas Sands: Buy With Confidence, Watch Earnings

| About: Las Vegas (LVS)

Last Feria checked in on Las Vegas Sands, ticker (NYSE:LVS), a Las Vegas casino and gaming giant captained by CEO Sheldon Adelson, FQ3 earnings were set to be announced when the stock hovered at $69 dollars a share, on October 17, 2013. Now, better than three months later with earnings again on the horizon, we are reiterating our buy call on LVS, now sitting at $75/share, on strong growth prospects and the potential for more dividend growth for shareholders.

From our first buy call on July 31st of 2013, LVS has returned better than 30%, in addition to shelling out $0.35/share in dividends.

Mr. Adelson, always cognizant of how to take care of shareholders, announced that LVS would raise the dividend to $0.50/share, an increase of 42%. This increase fattens the dividend to a healthy 2.86%. But we don't expect LVS to stop there. From CEO Adelson himself: "We have every intention of increasing the recurring dividend at Las Vegas Sands in the years ahead, as our business and cash flows continue to improve." The company's strong revenue growth has fueled its ability to return capital to shareholders. Revenues in the first three quarters of 2013 measured over $10 billion, 25% higher than the same period a year prior, and on pace to shatter 2012's $11.13 billion. The LVS share buyback effort has reduced the number of outstanding shares by over 4 million, and this number should continue to grow as revenues are expected to keep rising at a strong pace. LVS expects to purchase $75 million a month, and one cannot deny Adelson's commitment to returning capital to shareholders.

Growth Drivers

Well, LVS in its most recent earnings announcement, cited the fact that gaming revenues from Macau were up a whopping 40% year-over-year. And as we cited in our last note, the mass market in Macau grew 37% year-over-year, and this record growth portends a record year for LVS in this segment. Indeed, the company is growing in this region faster than the market itself.

Domestic growth, as GDP (recently announced at over 4% in the most recent quarter) is expected to remain at least over 2.5%, though Feria believes these estimates to be on the low end. The lower UE rate and the comparatively low gas prices should help the domestic tourism market, with LVS standing to benefit from its presence in Las Vegas.

Further, LVS is underway on a new Macau casino, with its competitors not having a new property open until the following year and beyond. LVS's Sands Cotai Central reached $224 million EBITDA in the last quarter, the fastest casino to reach this number in the history of Macau. If LVS can execute this successful strategy for its new casino set to open in 2015, revenue growth in the region should continue unabated. Given the fact that management believes Sands Cotai is in its "infancy," the potential for near-term growth in the region is huge. Indeed, analysts at Citigroup see 2014 as a watershed year for US/Macau gaming companies, as they remain optimistic on both the domestic and foreign demand for gaming.

Recent Price Action

After hitting a 52 week high of $82, LVS has come down around 10% from those highs before earnings. It trades at a 28 P/E, which in comparison to Wynn (NASDAQ:WYNN), at nearly 32, leaves LVS a bit cheaper. As followers of Feria will know, these standard, run-of-the-mill dips should be bought, as the thesis and fundamentals for the company remains the same.

LVS trades a not-insignificant forward P/E of 20.34, while Wynn is a more expensive 25.91. Given the growth prospects for the two companies, some contributors are even recommending buying both companies, as both have raised dividends and look to stay sharp in Macau.

Earnings Highlights

Investors should listen for a few important benchmarks as the company reports its earnings. News on the market in Macau, Singapore, and Japan amid some uncertainty more generally in China can help shed some light on how to set your guidance for the company for the next quarter and the next year. The progress of the new casino in the region is also a topic of interest, as LVS can capitalize on being the only new property for some time. Also, the domestic market's strength should also be monitored. Finally, Feria is looking at how the buy back program is progressing, making sure management is indeed committed to returning capital to shareholders.

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.