Our followers know the positive attributes Las Vegas Sands (NYSE:LVS) has going for it as a stock in the long term. Initiating coverage last July when the stock was a mere 37% lower, we have pointed to its strong fundamentals, shareholder-friendly management and stellar growth potential as indicators that the stock should be poised to perform well. And when earnings were announced last week, the stock basically went nowhere, down almost 3% on what appears to be disappointing news from Singapore. Buried in the earnings call, however, Feria believes is a gem that the market should come around to cheer in the long run: a fresh share buyback program.
LVS beat Reuters analyst projections on profit of $777 million, $4billion in revenue and adjusted EPS of 97 cents, compared to projections of 94 cents on $3.91 billion. We would like to revisit the growth story of LVS and point out an overlooked catalyst for another move higher: another share buyback program.
The Chinese peninsula of Macau continued to do wonders for the company's balance sheet. Another quarter, another record in Macau, growing 49% to reach a record $940 million. LVS continues to grow faster than the overall Macau market is growing, which bodes well for its next property on the strip. Another 13,000 suites and rooms will accompany the new Parisian Macau, helping LVS continue to draw interest from Macau's customers. LVS remains on target for a fourth quarter 2015 opening for the new resort, which coincides with the increasing space added by the new St. Regis tower at the Sands Cotai Central resort. Even as LVS is poised to compete for the top VIPs in Macau, it's the company's strength in the mass market segment that helps drive its growth faster than the industry itself. Robert Goldstein, President of Global Gaming Operations, on the mass segment: "But the real driver of our success as you can see for these numbers is our staggering advantage in the premium mass segments. That has been the driver of almost $600 million of EBITDA this quarter, up from $394 million… year-on-year returns… that's our powerhouse of strength."
Growth from Distant Travelers
Interestingly, LVS is witnessing increased visitation from outside the Guangdong province. Visitation from outside areas increased nearly 20% in the first two months of this year. However, Chinese visitation to Macau is an absurd 2%. As governmental infrastructure continues (see here for a good breakdown from The Growth Investor about the infrastructure improvements are underway), the company can expect these numbers to remain healthy as more Chinese visitors will make their way to the strip. More visitors will be able to make their way to the Cotai Strip with less headache as these much needed improvements near completion. Distant travelers, explained CEO Adelson, stay at the reports longer and spend more on dining, retail and gaming.
LVS remains steadfast in its lobbying of Japanese officials to bring gaming to the Land of the Rising Sun. Adelson has long said that he would invest $10 billion in a Japan resort. Japan's leaders have intimated that landing the 2020 Olympics has galvanized the political climate to accept gaming, but the jury is still out. Japan could quickly become Asia's second largest gaming mecca after Macau should a law pass, expected to rival the city of Las Vegas itself. Should progress be made in the Japanese political system, Las Vegas Sands is poised to seize the opportunity, just as it did in Macau, and could add billions to its bottom line. Shareholders should watch these developments carefully for some glimmer of hope on this front.
Returning Capital to Shareholders: Another Buyback In Store
LVS has been lauded for increasing its dividend last quarter by 42.9%, now paying $0.50/share from $0.35/share. At the current share price of $77, the yield equates to 2.6%. Adelson also reaffirmed the management's belief that the company is undervalued: "We expect to keep repurchasing at least $75 million of LVS stock per month. We saw the opportunity in the first quarter of this year of what we're reporting to buy more shares so we spend a total of $810 million. We look forward to continuing to utilize this stock repurchase program to its current capital to shareholders and to enhance long-term shareholder returns." Goldstein also chimed in by reiterating "I think what's fair to say is that we see value in the stock." It was in response to a question on the magnitude of the market capital used to purchase shares this quarter that Adelson let slip. He himself is considering the benefit of another buyback program, and the reason is simple: "The cash flow, the free cash flow that we will have in 2014 is significant, so significant that we could repeat our buyback program probably at another $2 billion. We have frankly - we haven't talked about it in the serious vein." The board may not have discussed it seriously, yet, but can shareholders really doubt Adelson's commitment to buying back shares? Not only did the company spend a ton of money to buy back shares this quarter, the CEO is basically saying that they want to spend another $2 billion to keep at it. The cash flow LVS enjoys does put it in an enviable position for any CEO, and this one definitely seems like he wants to spend more.
The muted reaction to earnings is anyone's guess. The management behind LVS has worked hard to earn the respect and trust of shareholders, and returning value remains to be a central tenet. With Macau continuing to underpin the company's wide success, the stock is a double threat with growth and value prospects for 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.