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Howard Stutz

Investors punish Sands stock

4 May 2007

LAS VEGAS, Nevada -- A day after Las Vegas Sands Corp. executives told Wall Street the company's quarterly profit took a hit because of the myriad costs related to the company's construction projects in Las Vegas and Asia, investors answered back.

It wasn't a response the casino operator wanted to hear.

Shares of Las Vegas Sands traded down on the New York Stock Exchange on Thursday while gaming analysts universally expressed disappointment in the company's first-quarter results. Las Vegas Sands said its net income in the first quarter fell 25 percent from a year ago and that it missed the earnings projections of most research firms.

"Despite the appearance of an inline quarter, a second look at the numbers reveals certain discrepancies that suggest results were somewhat lower than expected," KeyBanc Capital Markets gaming analyst Dennis Forst said in a note to investors. "This, coupled with the company's recent track record of soundly beating expectations, may inspire a less-than-than enthusiastic near-term reaction regarding Las Vegas Sands shares, in our opinion."

On Wall Street, shares of Las Vegas Sands opened more than 6 percent off from their close Wednesday on the New York Stock Exchange. By the end of trading, the company's shares closed at $84.13, off $4.41 or 4.98 percent. More than 6.5 million shares were traded, three times the average daily volume.

Analysts were mostly critical of the quarterly results from the Sands Macau, where a 24 percent increase in gaming revenue was offset by $12 million in expenses associated with human resources issues and promotional chip programs.

The Sands Macau results were also affected by the opening of Wynn Macau in September and an expansion of the Lisboa casino, which is operated by Chinese billionaire Stanley Ho. The company is also spending time and money readying the $2.4 billion Venetian Macau for its late August opening on the Cotai Strip.

"All in all, we were relatively disappointed with the results in the first quarter, especially out of Sands Macau," Wachovia Capital Markets gaming analyst Brian McGill said. "Sands Macau was affected by the additional competition, as well as higher-than-expected expenses related to the opening of the property. These expenses are likely to remain in the second quarter. We think these type of player retention costs are likely to be expected as the Cotai Strip opens."

Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski was also disappointed by the numbers from the Sands Macau, but he thought it was prudent Las Vegas Sands pushed back the openings of both the Venetian Macau and the $1.6 billion Palazzo on the Strip, scheduled for late this year.

He said the drop in the company's stock price was from investors focusing on the "lackluster" Macau results and worrying whether increased competition will hamper the company's development goals in the region, such as the seven hotel-casinos planned for the Cotai Strip.

"Further delays are possible but not necessarily a bad thing as management wants to make sure the properties open smoothly," Wieczynski said. "We expect Las Vegas Sands' stock volatility to remain high over the near term as continual increases in supply in Macau create some occasional uncertainty in the company's expansive proposed developments."