Monday, March 15, 2010

LVS: A Change of Fortune

By Eric Jackson

RealMoney Contributor

3/15/2010 2:00 PM EDT

Click here for more stories by Eric Jackson

On Nov. 10, I wrote on my concerns about casino operator Las Vegas Sands (LVS - commentary - Trade Now) and recommended that investors steer clear of the stock after a big 800% run from the March lows

The risks I cited then included:

  • Losses will persist without a meaningful upturn in operating performance
  • Debt requirements will get tighter over the next year
  • Continued development risk in Macau
  • Poor corporate governance oversight
  • Since then, the stock has been stuck in a trading range, rising 2%. However, my view on the stock has turned positive and I'm now long. What's changed? Some risks remain. The risks of tightening debt covenants remain. That will happen this year, so the company will have to continue to perform to meet those. Corporate governance is the same as it ever was. Sands CEO Sheldon Adelson will continue to look out for himself and his family. Investors should continue to expect egregious expenses charged to their tab.

    The biggest thing that's happened to make me positive on the stock is that the company's Macau operations have turned up sharply and seem poised to continue in this vein for at least the rest of the year.

    Sands' overall Q4 earnings weren't particularly good but, here's the thing. The market is not expecting much from the company's Las Vegas, Pennsylvania or Singapore results. The stock's fortunes rise and fall with the latest news on Macau, and business there seems to be much stronger this quarter and growing.

    In the risks I cited in November, I discussed the threat of continuing losses at the company and development risk in Macau. Although LVS has a number of properties there that still need capital to be completed, as the business environment has improved in these last four months, the risk of Sands coming up short has lessened. And with even a slight upturn in Macau revenue, LVS benefits disproportionately relative to its peers -- and that is what's happening at the moment (something the market hasn't yet fully recognized, in my opinion).


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