Las Vegas Sands: Why My Chips Are Still On This Large Casino Operator

| About: Las Vegas (LVS)

Despite crushing earnings estimates the last time it reported in late April, Las Vegas Sands (NYSE:LVS) has had a very tough go of it over the past three months on concerns over a slowdown in Chinese growth and its impact on its Macau properties and disappointing earnings from one of its prime competitors, Wynn Resorts (NASDAQ:WYNN). The shares have dropped some 25% over that time span, but the shares look enticing here given their long term growth prospects.

Key recent positives for Las Vegas Sands:

  • The recent easing in China should help growth there removing a headwind for casino stocks dependent on Chinese gamers. Nomura put out piece recently saying main operators have 40% upside from here.
  • Despite the sell-off in the shares over the last three months, consensus earnings estimates for both FY2012 and FY2013 have risen over that time span.
  • The stock looks like it has gone through a short term bottoming process at $45 and is ready to head higher (see chart).

(Click to enlarge)

4 reasons LVS is providing investors with a great entry point at just $46 a share:

  1. The twenty three analysts that cover the stock have a median price target of $65 a share. In addition, Credit Suisse reiterated its "outperform" rating and $68 price target on LVS.
  2. LVS is still selling in the bottom third of its five year valuation range based on P/S, P/E, P/CF and P/B.
  3. The company is a cash flow machine now that it brought online its casinos in Macau and Singapore. It more than quadrupled operating cash from FY2009 to FY2011. It is returning more of that money to shareholders through its 2.2% dividend yield which it initiated this year. I would look for those payouts to improve consistently over time.
  4. Despite being well positioned for the continued growth in Asia, LVS has a projected five year PEG of less than 1 (.58). It is also selling at just under 15 times forward earnings, a large discount to its five year average (46.8).

Disclosure: I am long LVS.