StreetAuthority | Apr 01, 2012 06:06AM ET
I'm a big fan of Las Vegas. I try to visit at least once a year to try my luck at the tables (I leave the club-hopping to the socialites).
I'm also an advocate of gaming stocks. In fact, I spent over a year writing a regular monthly feature for Casino Player Magazine called the "The Gaming Investor." That column enabled me to follow every bend and twist in this fascinating industry. This was back in 2007, when casino resort owners, slot vendors, and racetrack operators were filled with promise.
Unfortunately, the gaming sector was obliterated by the recession of 2008 and 2009. After years of stellar earnings and scorching stock gains, investors fled when consumer spending went cold and business conventions stayed closer to home.
Las Vegas is a poster child for the excesses of the real estate bubble. Land that was bid up to astronomical levels now sits vacant, strewn with half-finished projects that were abandoned when funding dried up. Overcapacity from the construction boom has made life difficult, even for experienced operators.
Just look at Las Vegas Sands (NYSE: LVS), which owns the glitzy Venetian and Palazzo mega-resorts and is also the world's largest casino operator by market volume. The shares ran up to the exorbitant price of $148 in October 2007 amid unbridled optimism. But they plummeted 99% over the next 18 months. By March 2009, you could pick up shares for about the price of a cup of coffee -- $1.38 per share.
Macau is the only venue in town (gaming on the mainland is restricted). So the region draws heavily from a population of 1.3 billion people that live within a short three-hour flight.
Las Vegas Sands' Venetian Macao resort has been a hit with both high-rollers and everyday players since it opened. Even in the first three months of 2009, when Macau's total visitor count dropped almost 10%, the Venetian Macau saw a 14% increase (6 million visitors). This glamorous resort, which anchors the famed Cotai Strip, almost prints cash.
Las Vegas Sands has two other properties nearby, the premium Four Seasons Resort and the Sands Macau (the first American resort to crack this market). The newest addition, slated to open in April, is the Sands Cotai Central -- a 5,800 room resort with every amenity imaginable to coax Macau's day-trippers into spending more time.
But wait, there's more...
Remarkably, though, Las Vegas Sands' flagship property isn't located in China or the United States. It's the Marina Bay Sands in Singapore, where the company holds one of just two coveted casino licenses. This resort pumped out a colossal $426 million in EBITDA last quarter, with an unheard-of margin of 52.9% (many resorts would be happy with 30%).
All in all, the company posted fourth-quarter 2011 revenue of $2.5 billion, the highest in its history. I'd say the tables have turned for the better in the gaming world, particularly for Las Vegas Sands.
Risks to Consider: Las Vegas Sands depends heavily on Chinese visitors to Macau, and an economic downturn could lead to quieter tables and slots. An ongoing federal corruption probe could also be a distraction. There are allegations that senior company officials greased a few palms to expedite condo sales. But the company flatly denies any wrongdoing. And in any case, the probe isn't really as serious as it sounds. According to Morningstar, similar infractions have typically resulted in nothing more than slap-on-the-wrist fines.
Las Vegas Sands has a strong foothold in three of the world's top gaming markets. Best-in-class property margins indicate the company is generating more cash from its resorts than rivals.
by Nathan Slaughter
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