Thursday, June 12, 2008

Las Vegas Sands (NYSE:LVS): Actionable Call Alert!

- Deutsche Bank is out with a wonderful (and Actionable) call on Casino stocks noting the sector has been hit hard as of late, with large cap names such as LVS, MGM, and WYNN down 25% on average since oil prices spiked ~3.5 months ago. A confluence of factors has worked in concert to drive casino stocks lower primarily stemming from an inflection in oil prices (underscoring concerns about the cost of transport to casinos and spend per visit).

Firm's conclusion is that the market is seemingly over-discounting the risk, especially when looking at recent Vegas data, which is down less than anticipated (YTD gaming revs -2.6%).

The most battered of the three stocks they are examining today, LVS shares are down over 35% since March. DB had previously lowered their LVS Las Vegas 2009 EBITDA estimates, resulting in their consolidated EBITDA estimate down over 5%. With the stock down 35% and consolidated EBITDA estimate revised only 5%, could this mean the Street expects another negative revision of 30% to consolidated EBITDA estimates? If so, to achieve a 30% negative revision in their LVS consolidated EBITDA estimates, implicit Vegas EBITDA would need to be revised downward by nearly 100% for DB's conclusion to be that all of the weakness is attributable to oil-related issues (and of course it is not). This tells us that shares of LVS are seemingly well oversold.

April Las Vegas Strip gaming revenues were reported yesterday to be down 1.3%, or down about 2.6% on a YTD basis. Clearly, gaming revenue performance hasn't been as bad as the Street appears to be discounting. Further, based on channel checks and anecdotal evidence, Deutsche thinks gaming revenues could inflect positively in May (helped by hold), rather than continuing a negative trend as seen YTD. Again, while backward looking, they would view this as incremental evidence that the Street has oversold shares of the aforementioned gaming stocks and that a series of positive economic / oil / Vegas news could lead to a sharp rally, most notably in LVS followed by MGM and WYNN.

Notablecalls: I'm calling this one Short Term Actionable as I think LVS will bounce significantly from current oversold levels. The stock has become a household short of late and Deutsche's comments will put some fire under this one.

I note DB has never been the biggest bull in town when it comes to Casinos & I think other (more bullish) firms will follow.

I see LVS trading up 2-3 pts on this call. Some of the bounce will surely occur today.

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