Las Vegas Sands' Worldwide Domination
Shazir 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) has been a high flying stock for the past couple of months. This could be because of the company's expansion, high volume, and phenomenal earnings. Las Vegas Sands recently reported its Q1 2013 earnings. The company attracted a horde of tourists and saw a 20% surge in revenue, led by accelerated growth in Macau. For these reasons, I believe that Las Vegas will see growth that it has never seen before. Below, I will explain why I think Las Vegas Sands will continue to soar as well as outline why its competitors are no match for it.
China's Casino Industry
The World Bank recently reported that Chinese growth will recover in 2013 to an estimated 8.4%, which is 0.3% greater than the previous estimate. World Bank cited government stimulus, monetary easing, and an upswing in the business cycle as the reason for the change in estimates. Las Vegas Sands is undervalued because of widespread fear in China. Its stock price should continue to ameliorate through 2013 due to the following reason.
Macau's deadly drop
Macau has been a casino empire for many years. Unfortunately, Las Vegas Sands does not control it. It has been trying to gain control of it by opening more casinos in the area to attract more tourists. But it is not its fault entirely, sluggish growth was seen in the area but after a few quarters of sluggish growth resulting from a dawdling Chinese economy, Macau's casino and gaming industry once again demonstrated strength. The region's gambling revenues surged 15% in the first quarter of 2013 led by the growth in various casino operations. Even though China’s economy worsened, Las Vegas Sands continued to do well in Macau.
Las Vegas Sands' Singapore revenue declined in the first quarter of 2013. Singapore’s economy has slowed down over the past few quarters, which has impacted its business. In addition, Singapore’s government launched new measures to stabilize the economy. I believe that the downward earnings trend in Singapore will continue, but this will not affect operations and overall results.
MGM Resorts International (NYSE: MGM)
Similar to Las Vegas Sands, MGM Resorts International has had a phenomenal recovery since the 2008 debacle. As many may argue, this is a phenomenal stock, yet it seems to be slowing down. MGM Resorts International currently has a year-over-year quarterly growth of 3% as compared to Las Vegas Sands, which has a growth of approximately 20%. MGM Resorts International’s gross margins also stand at 37%, while Las Vegas Sands is at a whopping 75%. MGM Resorts International’s PEG ratio is also negative.
Although its revenue is increasing, everything else is decreasing. MGM Resorts International has witnessed a decline of about 1.4 billion in cash over the past year. MGM is also opening up casinos, but its casinos are more concentrated in the Las Vegas area.For these reasons, I would recommend Las Vegas Sands over MGM.
Caesars Entertainment (NASDAQ: CZR)
Another player in the casino and hotel industry is Caesars Entertainment. I would not recommend this company at all. This company is losing a ton of money. There are many reasons that contribute to this stock’s dwindling cash balance. First and foremost is the amount of employees they have, currently at about 70,000, while Las Vegas Sands has a mere 46,000. Caesars also has a negative P/E. Like the others, Caesars Entertainment is opening up new casinos. A notable casino includes the Linq which has cost Caesars a whopping $500 million. These are just some of the many negative statistics that Caesars possesses and it would take the the company some time to get back on its feet.
Las Vegas Sands is well positioned to benefit from growth in Macau and China. In 2012, Las Vegas Sands was able to strengthen its grip in Macau through the addition of the first tower in the Sands Cotai Central resort. Las Vegas Sands is currently in the process of expanding its towers, which will support revenue growth rates in Macau.
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Shazir Mucklai has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!