Autodesk Pays Unconscionably, Las Vegas Sands Impresses Strategically

Includes: ADSK, LVS
by: Bill Cara

When you read articles like this about Steve Jobs, you’ll see why I would never have one of his companies in the Cara 100. That is the segue into why Autodesk (NASDAQ:ADSK) is being turfed today from the Cara 100.

As I wrote a couple days ago, as I see it, Carol Bartz has ripped off the shareholders with her unconscionable compensation plan, and the Autodesk stock buy-back plan is aiding and abetting her deal. In good conscience, I cannot support an employed manager getting paid $80 million a year for each of the past two years.

These people may think they are one of a kind, but let me remind traders that they are operators of a public company, not a personal fiefdom.

In case you want to check the record, Bartz was paid over 5 times the average S&P 500 company CEO compensation, including GE’s (NYSE:GE) Jeff Immelt who clocks in at a two-year average of about $17 million. To check these numbers you can go to the website at AFL-CIO.

A better bet for me is a company that has grown remarkably fast in the past couple years since its IPO. The company, under the capable management of Sheldon Adelson, is Las Vegas Sands (NYSE:LVS), but the sandcastles it's building that impress me most are the magnificent cash-generating ones in Macau, China.
In addition to solid management, the Las Vegas Sands Company is financially strong. I like the Altman’s Z-Score Ratio of 4.38 and Tobin’s Q Ratio of 4.30. With all the heavy capital development, the gearing ratio is just 2.00. And the interest cover is 4.7 times. Yes, the LVS PE is too high (after all, the ROE is 21.3) and the stock has run from ~40 to almost $110 during 2006 (with the peak reached in Jan-07), but I’m not looking to buy at today’s price of $86.13. I’ll be patient and let the stock come to me a little more.

I love the Las Vegas Sands operating margins: the gross profit margin is 48.4% and the pre-tax net is 22.5%. For a high cash turn-over business, this is like Humungous Bank & Broker. What brought Las Vegas Sands to mind? I was watching the very successful fund manager Ken Heebner being interviewed on Bloomberg a few minutes ago. My research on Heebner pointed me to a article entitled, “The Saviest Stock Picker in America.” Here’s a paragraph of the printed interview:

What's the common thread in your approach to stock picking? I look for fundamental developments that will cause a stock to significantly outperform the market. So I look for companies that will surprise on the upside. One holding with these characteristics is Las Vegas Sands. It's run by Sheldon Adelson, who had been in the convention business, sold it and developed the Venetian Casino in Las Vegas. When the Chinese took over Macau from Portugal, they opened it up to investment, and Adelson became the leading gaming developer there. What Las Vegas Sands did differently is make a deal to take over the Cotai Strip and fill in a huge swamp for the space to build eight casinos. Sands will develop casinos, shopping malls, condos and hotels. Profits from the sale of the condos, malls and hotels will finance the casinos. Analysts estimate that Sands will earn $2.88 a share in '08. It will probably be much higher. The Chinese love to gamble, and if you want a direct play on the growth of Asian wealth, this is the stock.

So Adelson knows gaming and he knows convention centers and he knows Macau – every inch. And he knows that there will soon be developed in the adjacent Chinese city of Zhuhai the world’s largest convention center complex. I hear that the total developed value will be something like $25 billion. My friend Michael Wong will be an architect. He is also senior urban planning consultant to both Zhuhai and Macau. You might say that he knows what’s going to be happening to the casino business in Macau (already larger than Las Vegas) when that Zhuhai complex is finished.

I cannot overstress the need to get into these deals early, but long-term traders have a need to get in sooner than later. With me, I look at price series motion, and this is just not the right time. Right company; right geography; right reasons. But, that’s just enough to get the Las Vegas Sands put onto the Cara Global 100 Best Companies list.

The rest is up to you.

Disclosure: No position at present. But if you recall these words on June 16, 2005 in my blogging against online gaming (and in support of the regulated industry), LVS was just $38.50. I believe I wrote up LVS on another occasion, but cannot locate the file in the archives.

The U.S. has a very strong casinos and gaming industry (GICS 2530). I have written it up in the past; and, at the appropriate time, I will even recommend stocks like LVS. So, please don't take me for an opponent.

ADSK vs. LVS 1-yr chart
adsk lvs chart