Thursday, May 03, 2007

Las Vegas Sands (NYSE:LVS): Missing the whisper number on Macau

Several firms comment on Las Vegas Sands (NYSE:LVS) after the co announced somewhat weaker than expected Q1 results last night:

- JP Morgan notes the Street is likely to react negatively to LVS' $5m EBITDA shortfall in Macau in 1Q, and the shares are probably range bound until early Sept when the market will get a sense of initial demand at Venetian Macao. Shares could break-out of the $83-$90 range btwn now and then due to monthly visitation and revenue growth in Macau deviating from the (+)30%-35% range. LVS' 1Q results in Macau do not alter the LT value that they recognize in the stock.

Bears will rightly point to LVS' 29.2% EBITDA margin, down from 32% in 4Q:06. LVS' reason behind $12m of temp. higher expenses will be greeted with some skepticism. While the $6m increase in employee costs will likely decline when Venetian opens, the labor mkt is tight and an increase in labor costs should be expected going forward.

The Venetian and Palazzo openings have been delayed but only by weeks in Macau and probably a few months in LV. Firm recalls the premature openings of both Venetian and WYNN in LV, both of which left negative tastes in investors' mouths.

JPM continues to recommend LVS, particularly during periods of rising investor skepticism, which may occur after last night's earnings. They expect LVS' EBITDAR will increase to $3.7B in 2010 from $824M last year. Reasonable multiple ranges on this cash flow produce a broad range of future values in 2010 from $150-$170 which supports firm's Overweight rating.

- Bear Stearns notes they expect the shares to trade down today (especially given shares + move yesterday) on the Sands Macao results and likely downward 2007 revisions to Street estimates. While Sands Macao results were softer than expected, they think the longer-term growth profile is, for the most part, unchanged. Firm continues to rate LVS Peer Perform and would likely be more opportunistic buyers at lower levels.

- Morgan Stanley says they are lowering their price target to $87 from $88 to reflect the delays to the Cotai openings. Firm believes the stock could trade off on the softer Macau number and the Cotai delays.

Notablecalls: The problem here is the Macau where EBITDA came in at $102 million vs. the 115 mln whisper number. This is also the first EBITDA decline Macau has seen since opening. It looks like Galaxy and WYNN have been more competitive luring in the mass market volumes. Competition usually means lower margins. And that's exactly what we got.

Trading at a high valuation (30x CY08), I think there is very little room for error here. The stock traded down to $83 but bounced back to $86 soon after, ending at around $85 in after hours action. I suspect there may be some additional downside in LVS over the next week or so. The stock may attempt to bounce early on.

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