The selloff in shares of Las Vegas Sands (LVS) since the April top of $62 has been ferocious. Mid last week when Sands was touching $39, that represented a near 40% drop in shares over the last quarter from its April highs. For full disclosure, I have been a proponent of Sands having been long since the high 40s, and I have been adding to shares as they weaken during this quarter.
Not only do I feel LVS has significant long term potential, it seems as though investors are becoming overly bearish even in the short run. Coming up on LVS' Q'2 earnings release, I am forecasting LVS to handily beat analyst expectations. Below, I've broken down the numbers to what I am expecting and will expound further by region.
The Numbers Breakdown
- Revenue: $2.82 b (vs. street est $2.78)
- EPS: $0.65/shr (vs. street est $0.60)
- Adjusted Property EBITDA: $1,168
Macau Market Share Growth
...is almost as important as gross gaming revenue. After Wynn Resorts' (WYNN) conference call last week, I came away with two takeaways: (1) Las Vegas Sands is taking market share rapidly, (2) The mass market in Macau is holding up far better than VIP. Here is an excerpt from the Wynn conference call regarding Sands:
In Macau, for the first 6 months, business was flat. We were slightly ahead. The market has gotten more competitive. Two new hotels opened up in the second quarter, operated by the Sands. And those 2 hotels added more games to the marketplace. And generally speaking, business was flat for the market, the high limit business and the VIP junket business and the total casino win. But we suffered on the top line, an adjustment of a couple of points on revenue, but we didn't seem to have the problem on the bottom line....I want to remind everybody that it's okay not to be first sometimes...
Granted, it's not a huge remark, but the takeaway I got from this part in the conference call was, hey, our market share slipped and it went somewhere, that somewhere is LVS. Wynn's market share nearly dipped below 10% in the quarter down from 10.25% the previous quarter. LVS rollout on the Cotai strip will continue to hurt Wynn, and he was doing his best to damage control.
The other key line item I saw in the Wynn press release was despite a 10% drop in mass market table games, the mass market table segment was down only 2.7% in the quarter. This bodes very well for LVS, where 50% of their revenue breakdown comes from mass markets. So, when you add the fact that LVS had increased tables, and the mass market remained strong in the quarter, I believe LVS' market share in Macau will see a nice gain this quarter, which will make up for the flat gross gaming revenue QoQ.
Singapore Likely Flat to Slightly Down
Singapore has turned into a cash cow for LVS, far outpacing my highest estimates when the property came on line in 2010. One thing I am interested to see is how the gaming side of the economy fared despite a possible 1.1% drop in GDP for the quarter. Visitor arrivals were down sequentially, but not much, which leads me to believe we will see a flat quarter for Singapore. This will mark the first sequential drop in MBS revenue, and I am eager to see how large of an effect it has on margins and adjusted property EBITDA.
United States Weakened
Although I am forecasting a 10%+ drop YoY in revenue for the quarter, margins should relatively hold in better due to the fact that WSOP was in town for this quarter and should have provided some stability to room rates. As everyone knows, Vegas strip revenue fell 18% in May, which paints a dire picture for Q2. I have forecasted a 1% YoY drop for June. In a nutshell, I think Vegas will remain flat to slightly down for the remainder of this year. LVS has positioned themselves through restructuring to be solidly profitable in Vegas despite market weakness, and when the rebound does come, they should be well positioned to take advantage of it.
LVS offers long term potential here with solid growth prospects moving forward. I remain relatively neutral/bearish on Wynn Resorts (as I wrote about here), because there are no near term catalysts to move the stock. Couple that with the fact that Sands is taking market share away from them in Macau, and you have a grim picture for Wynn over the next 2 years. As fears of a China meltdown erode, Sands will be well positioned to continue to capitalize on the burgeoning middle class in China and provide investors with significant upside from these levels both short and long term.