How Did Las Vegas Sands Perform In Q1?

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After an impressive performance through 2017, Las Vegas Sands (NASDAQ: LVS) continued its strong performance in the first quarter of 2018, beating both revenue and earnings estimate comfortably. Revenues in the quarter came in about 17%, higher than the year ago period, while the adjusted earnings jumped by about 58%, largely due to the tax benefit from recent tax reform. The record Q1 results were driven by robust performance in Macau, Singapore, and Las Vegas. The company is likely to benefit from suite additions at Parisian Macau, St Regis and Four Seasons properties, renovation of VIP gaming areas at the Venetian and Plaza Macau, and full scale development of two luxury hotel towers in the Vegas area. This should help improve gaming and non-gaming services in the domestic and Macau markets. Below, we take a look at what to expect when the company reports earnings.

The company’s stock is now trading at around $73, and we believe it is undervalued in comparison to our price estimate of $79. We have created an interactive dashboard elaborating on our valuation process. Please click on the link to adjust drivers and arrive at your own price estimate.

In Q1, LVS derived nearly 60% of its overall revenues from Macau, and revenues from the region grew strongly due to the casino industry rebound in the region. The gross gaming revenues (GGR) in Macau grew by nearly 21% y-o-y this quarter, indicating a strong start to the year. The Cotai strip has been witnessing strong traffic and higher occupancy rates, driven by the most recent addition of The Parisian Macau. The suite additions at The Parisian Macau, renovation of VIP gaming areas at the Venetian and Plaza Macau, and the renovation and rebranding of Sands Cotai – which is expected to be completed by 2020 – should put some near term pressure on earnings. However, the various new infrastructure developments in Macau should boost the mass market business for the company.  Further, the company expects its diversified offerings in the Cotai strip to continue to provide solid growth. Given the improved outlook of the casino market in Macau, we expect another strong year for LVS in Macau driven by rising outbound travel, strong spending growth, and its strong presence in the region.

Meanwhile, LVS continues to change its revenue mix by its sustained focus on convention-based integrated resorts, which helps to generate non-gaming revenue. These integrated resorts – which include retail malls, live entertainment and arenas as well as convention centers – have enabled substantial non-gaming revenues. The company is set to unveil its new entertainment complex plan either in February or March, and the project is expected to be completed by the summer of 2020. The facility, being built by Las Vegas Sands and Madison Square Garden, is specifically built for concerts and entertainment. As gaming companies are looking to draw more customers, LVS is betting on reaping benefits from an exclusive entertainment complex. These initiatives might have a short-term impact on the company’s bottom line, but should provide long-term benefits once they come into operation.

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