Las Vegas Sands May Still Be Cheap
I need to start with a little background on the casino business for those who are new to Main Street Stocks. Gaming has proliferated around the world in recent years with the most growth taking place in Macau, China. This is the only place in China gambling is legal and has seen growth in excess of 50% in recent years. They’re much larger than Las Vegas in terms of gaming revenue, so Macau is the true driver of gaming stocks right now.
Then as the financial crisis hit all of the gaming companies struggled to stay afloat under staggering debt levels. Most were forced to re-capitalize in some way which diluted their stock but left them in a slightly less vulnerable position.
Earlier this month Macau announced that gaming revenues rose 48% in December from a year earlier. This is great news for Las Vegas Sands (LVS) in particular who has a leading market position in Macau and the most developable land on the Cotai Strip, a plot of land similar to the Las Vegas Strip. Wynn, MGM and Melco Crown also own casinos in Macau but LVS has three completed hotels with three more under construction for a dominant position.
The other exciting potential for LVS is their Singapore casino, which will open in March (hopefully). The company has estimated $1.25 billion in EBITDA for the casino and with a location in downtown Singapore I’m not going to doubt it. The right to build this casino was a highly sought after prize with Harrah’s once calling their bid their most important strategic project. For more detail including pictures (oooo, ahhhh) visit the site below to see a dated presentation from LVS.
http://files.shareholder.com/downloads/ABEA-242MDE/760170635x0x273732/a9fe3463-b8e5-465c-ad31-9930da5fa432/AC803CED-C019-46C3-A998-6FB4FF53E313_jan_09_Citi%20EMT%20FINAL.pdf
Pennsylvania also recently passed a bill to allow table games in casinos that currently have only slot machines. LVS’s Bethlehem casino should improve performance even though it may not be an impressive facility.
There are reasons I don’t like the other casino operators. MGM just opened City Center which is a huge waste of money. Wynn has developed almost all of the land they have available. Melco is intriguing but I’ll save analysis on them for another day.
Disclosure: I owns LVS and it is a considerable portion of my portfolio. But I’m not selling.