Las Vegas beats Q2 2017 estimates, Macao gaming rev. up 29%

Concerns over gaming revenue growth in Macao and weak US dollar resulted in a decline in the stock of casino and resort operator Las Vegas Sands (NYSE: LVS) in the last week of July. Ironically, the company had reported better than anticipated fiscal 2017 second-quarter results. Additionally, on the basis of details presented below, we anticipate an upswing in the stock of Las Vegas in the days to come.

Strong casino revenues enabled Las Vegas Sands to report fiscal 2017 second-quarter revenues of $3.141 billion, up 18.5% from $2.649 billion in the same period last year. During Q2 2017, net income increased 66.2% to $545 million, or $0.69 per share, from $328 million, or $0.41 per share, in Q2 2016.

Excluding impairment of assets, pre-opening and development expense, and non-controlling interest impact on net income adjustments, among others, Q2 2017 adjusted net income of $576 million, or $0.73 per share, was higher than $421 million, or $0.53 per share, reported in Q2 2016. The Zacks analysts had estimated earnings of $0.61 per share on revenues of $3.02 billion.

Las Vegas Sands

Segment wise, during the June quarter, Casino operations generated the bulk of revenues at $2.464 billion, while Rooms, Food and Beverage, Mall, and Convention revenues were $377 million, $199 million, $159 million, and $138 million, respectively.

After a crackdown on corruption by the Chinese government, analysts were concerned about the gaming volume growth in Macao. However, the recent data from the Gaming Inspection and Coordination Bureau indicate that the high rollers are back to the gaming hub. The Macao gaming revenue increased 29.2% YoY to 23 billion Patacas ($2.86 billion) in July, and higher than the previous month’s increase of 26%. The VIP segment recorded a 35% jump in revenue, while the mass market segment generated 8% growth.

Reflecting the growth, Las Vegas reported robust performance in Macao. The Venetian Macao revenue grew $21 million to $687 million. Plaza Macao and Four Seasons Hotel Macao’s revenue increased to $137 million, from $125 million last year. Sands Macao and Sands Cotai Central revenue decreased marginally to $161 million and $445 million, from $185 million and $473 million, respectively. The Parisian Macao recorded revenue of $361 million. Overall, Macao operations revenue increased to $1.836 billion in the second-quarter, from $1.490 billion in the same period a year ago.

All the Macao properties reported an increase in hotel occupancy rate. The Venetian Macao, Sand Cotai, Plaza Macao, and Sand Maco recorded an occupancy rate of 93.3%, 81.4%, 81.3%, and 98.5%, up from 81%, 76.5%, 69.2%, and 96%, respectively.

The company also paid a quarterly dividend of $0.73 per share and made share repurchases of $75 million. Thus, solid performance and upbeat gaming revenue growth in Macao is expected to propel the stock to new heights in the coming week.

The historic price chart indicates strong support for the stock at 60.50. Furthermore, the Chaikin money flow indicator is above the zero level, while the MACD indicator has crossed into the bullish zone. Thus, we can anticipate an uptrend in the stock of Las Vegas Sands.

In order to capitalize on the probable uptrend, we wish to invest in a high or above option, which remains active for one week. The investment would be made only when the stock trades near $61 in the NYSE.

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