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Gaming Guru

Howard Stutz

Investors drub shares of Las Vegas Sands

27 July 2012

Shares of Las Vegas Sands Corp. took a beating Thursday, a day after the company missed second-quarter earnings projections by 27 percent.

The stock price decline wasn't a surprise, especially to Wall Street. The company's properties in Macau grew revenues 22.3 percent, but suffered a 40 percent decline in profits. Las Vegas Sands' net income fell almost 35 percent.

"While moderation in Macau growth trends was expected, given the seemingly constant release of negative data points throughout the quarter, it appears as though neither we nor other analysts on the street accurately understood the full ramifications of the changing market environment," Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski told investors.

He titled his research note, "With Shares Falling Will Sheldon Open His Wallet for LVS vs. GOP?" in reference to Las Vegas Sands Chairman Sheldon Adelson's often-quoted plan to donate $100 million to defeat President Barack Obama.

Shares of Las Vegas Sands, which fell 7 percent at the outset of trading Thursday on the New York Stock Exchange, ended the session at $36.41, down $1.10, or 2.93 percent. Since April, Las Vegas Sands shares have declined roughly 38 percent. More than 10 million shares were traded Thursday. On a normal day, 3 million shares change hands.

The decline came in the face of a broad market rally that saw the Dow Jones industrial average gain nearly 212 points.

Deutsche Bank gaming analyst Carlo Santarelli thought the company's depressed stock price might garner new investors.

"With shares down, we believe fresh eyes will see sanitized and presumably realistic, in the current environment, forward estimates that reflect relatively inexpensive valuation on most metrics and begin to ponder picking bottoms," Santarelli said.

Las Vegas Sands said lower hold on table games play, higher provisions for accounts receivable at the Marina Bay Sands in Singapore, and unspecified elevated legal expenses were to blame for the declines in profits and earnings per share, which fell 35.6 percent.

In a statement, Las Vegas Sands said corporate expense for the quarter was $58.6 million, compared to $42.4 million in the second quarter of 2011. The company did not break out the amount of the higher legal fees responsible for the increase, nor did it state the nature of the expenses.

At the outset of a conference call with analysts and investors, Adelson said the company's quarterly revenue would have been $107.5 million higher if hold percentages were normal in Macau, Singapore and Las Vegas.

Still, Las Vegas Sands' revenues were $2.58 billion in the quarter, an increase of 10.1 percent from a year ago. However, the company's only reporting region other than Macau that showed an increase in revenues was from the Sands Bethlehem in Pennsylvania. The hotel-casino, which was built at a fraction of the cost of the resorts in Macau and Singapore, reported revenues of $115.1 million, an increase of 18.5 percent.

"It's a tough quarter when Bethlehem is one of the bright spots," Credit-Suisse gaming analyst Joel Simkins told investors.

Cantor Fitzgerald gaming analyst Robert LaFleur said Las Vegas Sands' Macau business might be feeling the affect of visa restrictions being imposed by China's province of Guangdong for visitors to Macau. Any economic slowdown in China could also damage gaming industry revenues in Macau.

"We don't believe the lousy quarter reveals any major structural cracks in the Las Vegas Sands story," LaFleur said. "Macau and Singapore remain attractive growth stories and infrastructure build-outs in each market will facilitate long-term growth."