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LAS VEGAS-Shares of casino operator Las Vegas Sands Corp. are up more than 10% over the past two days, much of it attributable to a JP Morgan analyst that changed his opinion regarding upcoming competition for the company in the Macau market. The rise began on Wednesday, the day analyst Harry C. Curtis upgraded Las Vegas Sands to "Overweight" from "Neutral," saying Wynn Resorts' new Macau casino will boost the number of gamblers that will overflow into Sands Macau.
The remarks are an about face from November, when JP Morgan downgraded the stock to "Neutral" in part due to competitive concerns. "What has changed since then is the continued growth in mass market demand and [Las Vegas Sands'] ability to maintain stable win per units despite added capacity in Macau," says Curtis. "We believe that Wynn's opening will create more demand than supply given the world class quality of the resort and its history in Las Vegas of driving greater visitation than the supply created."
Curtis says Wynn will open with only 210 table games with minimums far higher than most of those offered at Sands Macau, while Sands will add 270 tables within 10 days in order to capture Wynn's overflow demand. "If we are correct, then we believe that sentiment on [Sands] will shift from cautious/negative because of supply concerns to positive, with the view that good supply (Wynn and Sands) stimulates lasting demand," says Curtis.
In addition, Sands is seeking approval of a new development on Hengquin Island, which is near Macau. Curtis says the plans are likely to be approved, which should push shares higher if development begins by the end of 2006.
"Investors were disappointed with results in Las Vegas in 2Q but the several sources of shortfall should improve over the next several quarters; [Las Vegas Sands] has made a series of investments that have yet to pay off including a new poker room, entertainment, and expanded meeting space," says Curtis. "We believe that an entry point in the mid $60 range is compelling long term as well. By 2010, once casinos are open on Cotai (including sites 7 and 8) and Singapore, LVS should generate EBITDA of approximately $3 billion, with little or no debt.
Shares of Las Vegas Sands closed Tuesday at $60.75. Shares closed Thursday at $66.98. Shares hit a 52-week high of $78.90 on June 30.
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