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Las Vegas Sands is the Stock Version of a Bruckheimer/Bay Flick (LVS)

Posted on | October 20, 2008 Time: 2:35 pm |

I’ve been working hard to get a breakup value & earnings model going for Las Vegas Sands, but the input parameters keep changing by the hour. This casino operator with massive interests in Macau and Vegas is down over 90% in the past year, and I’ve long been a fan of the potential for value here. But these days its all about big action with this stock - big spending, huge debts, high rollers, and massive egos - just like the makers of tentpole summer flicks.

Sheldon Adelson (the master string-puller of the Las Vegas Sands operation) owns over 64% of the stock and was, as of one year ago, the third-richest man in America. Not so much these days…He had to inject over $400 million of his personal money just to preserve bank covenants in the third quarter. Those covenants call for the company to maintain at least 20% equity in either cash equiv’s or rolling operating income, and the operating income side has been, well, pretty bad in recent quarters. Vegas operations are a zero-sum game at present, although the company’s Palazzo property should provide incremental earnings growth in the 3rd quarter.

Build Big or Go Home

It’s really Macau that’s driving both the long-term opportunities and the short-term crisis at the company. Sheldon absolutely must finish spending whatever it takes to get the 6-plus new hotel/casino properties up and open on the Cotai Strip and Macau. As much as he or shareholders may want him to stop or at least slow down, he’s bound to either “use it or lose it”. If he can’t finish, he has to give up the land and forfeit basically every dime put into the place. Such is the nature and risk of “capitalism” in China.

Hey Buddy, Wanna buy a gondola?

And here we are, staring right at the eye of the worst funding storm in decades, if not ever. Adelson and his team have been putting a potential price tag on anything it can find or dream up, just hoping to secure the $5-8 billion it will take just to get through 2009. The most likely sources of cash are selling off property slices or bundling up their retail lease space in Macau and Vegas. This could get them a few billion, but still won’t be enough to get Adelson over the hump.

And yet, I still see the stock as worth the gamble. I’m going to use Adelson’s ego against him and bet that he’ll sell his last (insert gaudy item here) and sink it into the company if need be…whatever it takes. The Venetian Macau has been open about a year now, and the operating income needs to start cranking out $200-300 million per quarter before I’ll be breathing easy on this Secular Trends Portfolio holding. It’s the world’s largest hotel and casino, so it ought to start contributing to the bottom line fast

So long as the funding gap can be met before shareholders get wiped out, there is a lot of value here. The market cap is only $4.6 billion, and the company’s real estate alone is worth three or four times that amount. I know there are many other variables here, but the basic picture fits in the frame. The breakup value model will hopefully get a number out there that can put a price range and exit strategy on the company.

Ryan Barnes

More on this topic (What's this?)
Las Vegas Sands Shares Soar After Singapore Deals Itself In (Contrarian Profits, 10/30/08)
Las Vegas Sands puts the brakes on Macau (China and Asia Stock Alert - Glo..., 11/11/08)
Las Vegas Sands Shares Soar After Singapore Deals Itself In (Money Morning, 10/30/08)
Read more on Las Vegas Sands at Wikinvest
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