Trends In Las Vegas Sands’ U.S. Casino Operations Amid A Recent Decline In Gaming At The Strip

The Las Vegas Strip continued to see a drop in gaming revenues for the fourth consecutive month in November. Statewide, revenues were up 0.4% to $876 million. However, the Strip saw a decline of 4%, primarily due to a 8% drop in table games revenues.  Slot revenues were up 2% while the amount wagered was down 2.5% at the Strip. ^[1] It must be noted that the slot machine wagering largely reflects the health of gaming on the Strip. Las Vegas Sands (NYSE:LVS) has more than 5,000 slot machines in the U.S. The company’s revenues from its U.S. operations were $508 million for the first nine months of 2014, slightly higher to the prior year period. ^[2] Going forward, we believe that the company will see steady growth in its domestic casino operations primarily led by the economic recovery. On that note, we discuss below the trends in Las Vegas Sands’ U.S. casino operations and the forecasts we derive for them.

We estimate gross revenues of about $18 billion for Las Vegas Sands in 2014, with EPS of $3.54, which is in line with the market consensus of $3.31-$3.98, compiled by Thomson Reuters. We currently have a $74 price estimate for Las Vegas Sands, which is more than 25% ahead of the current market price.

How Are Las Vegas Sands’ U.S. Table Games Operations Trending?

We estimate that the domestic table games are of little value to Las Vegas Sands’ and contribute less than 1% to the company’s stock price. The company offers approximately 400 table games in the U.S. Table games include blackjack, baccarat, craps, and roulette, among others. The casino earns revenues on the hold over the amount of money being wagered at the gaming tables. The hold percentage is usually between 20% and 22% at Las Vegas operating properties while it is between 14% and 16% in Pennsylvania, but it varies from game to game. The total value of table games drop increased from $1.36 billion in 2007 to $2.25 billion in 2013 at the Las Vegas properties. The table games money wagered increased 16% to $633 million during the first nine months of 2014. Going forward, we forecast the amount of money wagered will increase, driven by the recovery in the U.S. economy. The U.S. per capita disposable income is expected to grow from $37,352 currently to $43,312 in 2020, according to a research by IBISWorld. ^[3] As the U.S. economy recovers and per capita disposable income increases, consumer spending on leisure, including gaming and entertainment, will also rise. Accordingly, we estimate Las Vegas Sands’ U.S. table games revenues to continue to grow and be close to $1 billion by the end of our forecast period. An estimated EBITDA margin of 17% will translate into EBITDA of $170 million, representing 2% of company-wide EBITDA by 2021.

Las Vegas Sands Sees Steady Growth At The U.S. Slot Gaming Operations

U.S. slot games also contribute less than 1% to Las Vegas Sands’ stock value, according to our estimates. The company’s domestic slot games revenues increased from $149 million in 2007 to $465 million in 2013 and $339 million in the first nine months of 2014. Growth in slot revenues over the past few years can be attributed to an increase in the company’s slot hold percentage, which has grown from 6% in 2007 to 8.7% in 2013. ^[2] We expect this trend to continue in the coming years. As the world economy stabilizes and per capita disposable income increases, the slot handle is expected to rise in the coming years. The expected increase in slot handle would lead to higher slot machine win per unit per day. Accordingly, we expect Las Vegas Sands to continue to see growth in its U.S. slot revenues and forecast it to be north of $700 million by the end of our forecast period. An estimated EBITDA margin of 19% will take EBITDA close to $140 million, representing 1% of the company-wide EBITDA by 2021.

1. Statewide gaming revenue up, but Strip numbers fall again, Las Vegas Review Journal, Dec 30, 2014 [↩]
2. Las Vegas Sands’ SEC Filings [↩] [↩]
3. Business Environment Report – Per capita disposable income, IBISWorld, September 2014 [↩]