Should we fold or double down? That seems to be the question of the day. Yesterday, Las Vegas Sands (LVS) closed at $52.18 and today it fell down to $47.29, falling 9.4%. Ouch. Now feels likes a great time to review our pick and see what is going on.
Las Vegas Sands (LVS) runs integrated resorts in Las Vegas in NV (that a surprise, it’s in the name), Bethlehem in PA, Macao in China, and Marina Bay Sands in Singapore. Its resorts include accommodations, celebrity chef restaurants, convention, entertainment, exhibition, gaming, and retail. It was founded in 1988. Las Vegas Sands (LVS) is based in Las Vegas, Nevada (Again, I bet you are surprised).
They have a PE ratio of 19 and a P/S ratio of 3.6. Not a cheap value, but not too overpriced. In 2014, they earned $2.8 billion and they earned only $2.0 billion last year. If they get back up to $2.8 billion, their PE would only be a 13.4. So part of the question is can they increase their earnings back to previous levels. We will explore that in the next section.
On a constant currency basis, hold-normalized adjusted property EBITDA increase 10.3%. However, earnings per share went from $0.97 to $0.66 to $0.45 in the 1st quarter of 2014, 2015, and 2016 respectively. EPS (earnings per share) being cut by 53% in 2 years is bad. Looking at the US Dollar Currency Index (.DXY), it has gone from ~80 to a high of 100, or an increase of 25%. When foreign revenues are translated back into US$, 25% percent gain in currency is a 25% reduction in revenue, which decreases profits. The US based operations increased revenue from 2015 to 2016, even though oil went down and how close Las Vegas is to oil states. When currencies stabilize, we see profits going back up, especially since excluding currency showed an increase in business. We believe we are buying a great company with currency out of their control. Therefore, when currency stabilize, profits should go back up.
They just increase their dividend from $0.65 to $0.72 per quarter, which is a nice 10.7% pay raise. They only have been paying a dividend since 2012, starting at $1.00 per year. Now they are paying $2.88 per year, almost tripling in only 4 years. If they were worried about the future and wanted to save cash and keep their dividend increase streak going, they could have raised it $0.01 per quarter to slow down dividend payments. At a $0.66 dividend, the yield would still be a 5.6% dividend today. However, their dividend increase was more aggressive and now they pay $0.72 and yield 6.1%. That is a great yield for us.
What I bought
While this weakness is a little bit of a concern, we believe Las Vegas Sands (LVS) and time will overcome these currency obstacles. We added another 5 shares for $243.44 and added another $14.40 a year to our dividends. While we did not completely double down by only buying 5 shares instead of 7 (we owned 7 shares before today), we did add to our position.