4 Stocks Better than Las Vegas Sands in 2014 - Analyst Blog

Las Vegas Sands Corp. (LVS), the leading developer of multi-use integrated resorts primarily in the U.S. and Asia, has recorded average earnings and revenue surprise of a negative 0.6% and 1.2%, respectively over the past three quarters. Consequently, this Zacks Rank #3 (Hold) stock has lost approximately 31.5% year-to-date compared with the S&P 500's gain of 7.7%. This brings us to the question as to why Las Vegas Sands has struggled to keep pace with the broader index.

In fact, the entire gambling industry has been under the weather for most of 2014 as factors like a sluggish economy in operating regions, political unrest and other external affairs limited visits.

Health of the Domestic Casino Business

Many states in the U.S. like Nevada, Florida, Illinois, Indiana, Kansas, Maine and Maryland generate significant gambling revenues. Notably, Nevada is a major source of revenues for most gambling companies. However, it has had a topsy-turvy ride so far in 2014. Gambling revenues declined in the first two months of the year but were up significantly in the month of March.

Revenues were down slightly in April but gained momentum soon and increased for three consecutive months beginning May. However, owing to a weak performance in baccarat, revenues declined in August, September and October. Baccarat is a lucrative but volatile card game that generates a major part of casino revenues and therefore is a big reason behind swinging casino fortunes.

Another popular gaming destination Atlantic City, NJ has witnessed a number of closures since the beginning of the year. Atlantic City was once a thriving gambling market in the Northeast. However, with gambling opportunities coming up in New York, Pennsylvania and Connecticut, the New Jersey market has hit a rough patch.

What's with the 'Monte Carlo of the Orient,' Macau?

Macau, the only destination in China where gambling is legal, was on a growth track until May 2014. After declining in single digits for three consecutive months beginning June, revenues declined 11.7%, 23.2% and 19.6% in Sep, Oct and Nov 2014, respectively. In fact, Macau gaming regulators have declared that 2014 is going to be the first year of extremely disappointing results.

This slump reflects a slowdown in Macau as a result of high-stake gamblers curtailing spending amid a cooling Chinese economy. Also, the nationwide crackdown on corruption in China has compelled Macau officials to impose restrictions on high rollers in order to stop billions of dollars from being siphoned off illegally from mainland China to Macau.

Restrictions like limiting the use of state-backed payment processor UnionPay is making it harder for players to obtain cash to gamble. Moreover, tighter restrictions on visas are further worsening the situation. Meanwhile, the political unrest and pro-democracy demonstrations in Hong Kong are compounding woes.

Plans for Another Potential Market in Asia Thwarted

The postponement of legalization of casinos in Japan for an indefinite period has disappointed casino companies like Las Vegas Sands, MGM Resorts International (MGM), Wynn Resorts Ltd. (WYNN), Melco Crown Entertainment Limited (MPEL) and Caesars Entertainment Corporation (CZR). This market has the potential to become the third largest gaming destination after Macau and the U.S. with an expected annual turnover of more than $40.0 billion.

Four Stocks That Outperformed Las Vegas Sands

Most of the gambling stocks have suffered this year as reflected in the last three quarterly performances with Las Vegas Sands turning out to be one of the biggest losers. However, four stocks performed better than Las Vegas Sands in terms of three-quarter average revenue and earnings surprises, and year-to-date share price return.

Based in St. Louis, MO, Isle of Capri Casinos, Inc. (ISLE) operates 15 casino gaming facilities in various states of the U.S. The company's earnings beat the Zacks Consensus Estimate in two quarters and matched the same in another. Its revenues missed the consensus mark in one quarter while beating the same in the remaining two.

This Zacks Rank #2 (Buy) stock has delivered positive average earnings and revenue surprise of 71.5% and 1.44%, respectively. Meanwhile, year-to-date share price of this leading regional gaming and entertainment company has declined 12.7%, much lower than Las Vegas Sands.

Penn National Gaming Inc. (PENN) with headquarters in Wyomissing, PA owns manages or has ownership interests in 26 facilities in 17 jurisdictions in the U.S. This owner and manager of gaming and pari-mutuel properties also beat earnings in two of the last three quarters and matched estimates in one.

Though revenues missed the consensus mark in one of the quarters, it came ahead of estimates in the remaining two. The average positive earnings and revenue surprise for this Zacks Rank #2 stock came in at 30.6% and 1%, respectively. Shares of the company have lost only 9.8% year to date.

Based in Las Vegas, NV, MGM Resorts has a number of casino resorts in the local market and a 51% controlling interest in MGM China. It beat the Zacks Consensus Estimate on both counts in two of the past three quarters while missing the same in one. This Zacks Rank #3 company has posted positive average earnings surprise of 17.2% and revenues earnings surprise of 0.8%. Share price of the company has declined 20.5% so far this year better than the decline witnessed by Las Vegas Sands.

Wynn Resorts, which operates casino hotel resorts in Las Vegas as well as Macau, earnings beat the Zacks Consensus Estimate in all the quarters of the year. Revenues missed the consensus mark in one quarter but managed to surpass the same in the remaining two quarters. This Zacks Rank #3 company has also posted positive average earnings surprise of 6.2% and revenue earnings surprise of 0.48%. Share price has declined 26.7% year to date.

Others Stocks That Disappointed

Besides Las Vegas Sands, other companies that had to bear the brunt of macro headwinds include Boyd Gaming Corp. (BYD), Monarch Casino & Resort Inc. (MCRI), Iao Kun Group Holding Company Ltd. (IKGH), Full House Resorts (FLL) and Caesars Entertainment.

What Lies Ahead?

Despite sluggish performance in Nevada over the past three months, analysts remain hopeful. They believe that except for gaming, mass table gambling and other forms of entertainment, which includes restaurants and the hotel segment, are performing well, attributable to the strong trends in Hawaiian tourism, recent renovations, new amenities, and increasing corporate meetings and conventions. We need to wait and see whether high spending Chinese gamblers begin to move to the strip to try their fortunes and benefit Las Vegas in the process.

As far as Macau is concerned, analysts expect declines in 2015 also. Given the timing of the Chinese New Year in Feb 2015 compared to January in 2014, some analysts once again expect a double-digit decline in the first month of the New Year. In fact, no improvement is expected until the second quarter of 2015. The companies are however trying their best to bolster revenues.

Let us see whether the loss of one region benefits another over time.

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