Throughout the past week or so we have seen soft earnings from many of the large casino companies that have severally pulled down the whole sector. Wynn down ~16%, BYD ~33%, and LVS ~24% this past week. Even though LVS hasn't reported earnings yet for this quarter, the stock is still down 24% this week. Their earnings will be reported Thursday after the market closes. Analysts are expecting LVS to lose one penny per share, which shouldn't be too hard for them to beat.
"Analysts polled by Thomson Reuters expect Las Vegas Sands to lose one penny per share on $1.17 billion in revenue, compared with profit of 2 cents on revenue of $1.11 billion in the same period a year earlier."
It also seems that analysts are actually confident in this company, since it seems to have better management than other casino companies.
"ANALYST TAKE: Jeffrey Logsdon of BMO Capital Markets, who lifted his earnings expectations for Sands this month, told investors Sands would likely see strong performance in Macau.
Logsdon reaffirmed his "outperform" rating and said an improving economy and easing visa restrictions will likely bring even better results later."
I also think that it is worthy to note that most scared investors have already pulled out of this stock during the weak when other casino stocks have provided poor earnings. This has pulled LVS down 25% before any news of earnings have been presented. To me this means that investors are expecting poor earnings and have already brought down the stock price to show that. I think that there is huge potential upside if LVS presents positive earnings tomorrow and a smaller downside if earnings are week b/c this is already reflected in the stock price.
In order to hedge your risk you could buy put options in other casino stocks while buying calls in LVS since bad earnings from LVS will drag down the rest of the sector as well.
Let me know what you think.
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The casino sector is a very interesting area. On the topic of Las Vegas Sands, the 25% correction was virtually made back with yesterday’s gains and the highs of today. However, I am concerned with the larger than expected loss that was reported and that leads to my overall thesis with the casino names.
I believe the entire casino sector is an extremely long term play. I am talking at least a 5 year time horizon. The entire gaming industry revolves around employment and the consumer. As unemployment stays high and consumers remain fiscally conservative, the only thing going for the casino stocks are short term catalysts such as LVS emphasizing their expansion in Macau or the future growth Singapore can bring. It is the same case with MGM Mirage – it is a long term play except if one was trading on Dubai World and MGM coming to an agreement to complete City-Center awhile back (which they ended up agreeing on) or if MGM was going to sell one of its casinos to help meet its severe debt obligations (MGM ended up selling Treasure Island).
Going forward, I believe MGM is a better play than LVS, especially if one is betting on more traffic in Las Vegas in the future ahead. The only popular casinos LVS has in Vegas are The Venetian and The Palazzo, both which are right next to one another. MGM has the Bellagio, Mandalay Bay, Mirage, Monte Carlo, Luxor, and more. All of these properties are spread out over the entire strip. Therefore, I am assuming that MGM will have less vacancy rates than LVS going forward. I understand that LVS is more financially healthy than MGM and that they are both high beta plays, but over the long term I believe MGM will do better.
Even if all the casino stocks reported great earnings, I still think that the story behind these plays is primarily employment data. Just today, consumer sentiment fell by approximately 4% and personal spending dropped .5% for the month of September. So what confidence could that data bring to the casino names in the short term?
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