Good Reasons to Bet on this Casino
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Las Vegas Sands (NYSE: LVS) is a very special casino and resorts operator, the company obtains nearly 85% of its revenues from Asia, having a big advantage over its competitors since it owns one of the two casino licenses available in Singapore and one of the six licenses issued in China. These two locations provide extraordinary growth possibilities and make Las Vegas Sands a superior alternative to operators with a bigger exposure to the US.
Macau has become the center of gambling and tourism for a big part of the Chinese population, and has surpassed Las Vegas as the top casino market in the world by revenue. The local government limits supply in the industry, so Macau doesn´t face the same oversupply problems observed in Las Vegas and other traditional gambling cities. Las Vegas Sands has a 15% market share in Macau, and is building new projects that will further increase its presence in that city.
Singapore may be an even more attractive opportunity for the company; Las Vegas Sands has a duopoly in that market, which has experienced rapid growth due to the country's GDP growth as well as the affluence of customers from all over the world. Taxes are also lower in Singapore than in China, with gaming taxes at 22% of mass market revenue and 12% of VIP revenue versus a 39% in Macau.
The company has successfully launched mega-resorts in Las Vegas, Macau and Singapore, which gives it a strong position to compete for new licenses in countries like Japan, Taiwan and South Korea where there is a possibility of legalized gambling and new business opportunities over the middle term. It sounds logical to assume that countries which are considering legalizing gambling in the future may look for licensees with proven and successful experience elsewhere.
Its exposure to Singapore and Macau, as well as the company´s efficiency when it comes to obtaining superior profit margins and return on investment has produced a better track record than the one delivered by competitors like Wynn Resorts (NASDAQ: WYNN) and MGM (NYSE: MGM). The following chart compares the earnings per share evolution for the three companies over the last five years.
Over the following years the company will be nearing the completion of many of its developments, which means lower capital expenditures and higher free cash flows for investors. Free cash flows should increase faster than earnings per share in the middle term due to the positive effect of these lower capital expenditures.
Las Vegas Sands doesn´t look like a bargain at a forward P/E ratio near 14.5, but investors should keep in mind that the company has proven its ability to successfully develop new projects with high degrees of profitability and it has licenses to operate in two of the most attractive markets in the world. Considering the quality of its assets, this casino stock looks like a good bet.
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