Options Trade - Las Vegas Sands (LVS) Wednesday, September 05, 2012

The Breakout of Las Vegas Sands Is Ready To Be Exploited!

**OPTION TRADE: Buy the LVS Dec 2012 45.000 call (LVS121222C00045000) at or under $2.10, good for the day. Place a protective stop limit at $0.80 and a pre-determined sell at $3.50.

by Ian Harvey

September 05, 2012

Introduction

Casino stocks are some of the toughest bets: they trade at high multiples, are subject to political instability, and are very volatile. In my view, however, the reward largely overweighs the risk. Las Vegas Sands (NYSE: LVS), for example, is led by top management and has excellent exposure to high-growth emerging markets.

Las Vegas Sands Corp., together with its subsidiaries, owns, develops, and operates various integrated resort properties primarily in the United States, Macau, and Singapore. Las Vegas Sands has a market cap of $34.88 billion and is part of the services sector. The company has a P/E ratio of 24.5, equal to the average leisure industry P/E ratio and above the S&P 500 P/E ratio of 17.7. Shares are down 0.8% year to date as of the close of trading last Friday.

Analysts Ratings

Currently there are 17 analysts that rate Las Vegas Sands a buy, no analysts rate it a sell, and three rate it a hold.

TheStreet Ratings rates Las Vegas Sands as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures, notable return on equity and expanding profit margins. We feel these strengths outweigh the fact that the company has had subpar growth in net income.

Highlights from the ratings report include:

• LVS's revenue growth has slightly outpaced the industry average of 0.8%. Since the same quarter one year prior, revenues rose by 10.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.

• Net operating cash flow has increased to $750.87 million or 13.22% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -8.91%.

• LAS VEGAS SANDS CORP's earnings per share declined by 35.5% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, LAS VEGAS SANDS CORP increased its bottom line by earning $1.56 versus $0.50 in the prior year. This year, the market expects an improvement in earnings ($2.34 versus $1.56).

• Even though the current debt-to-equity ratio is 1.06, it is still below the industry average, suggesting that this level of debt is acceptable within the Hotels, Restaurants & Leisure industry. Despite the fact that LVS's debt-to-equity ratio is mixed in its results, the company's quick ratio of 2.26 is high and demonstrates strong liquidity.

• The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market on the basis of return on equity, LAS VEGAS SANDS CORP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.

More Positive Input

Concerns about a slowdown in China and tepid gaming activity in Vegas have been detrimental to LVS shares. However, the environment seems to be turning more positive, the stock has bounced off technical support and the company seems to regaining momentum.

Recent positives for Las Vegas Sands:

• Lazard's analyst Jake Fuller last week reiterated his buy rating on LVS. He calls it his top pick in the sector based on its position in the mass market and positive trends recently in Macau. He also states the company has the capacity to increase its buybacks and dividend payouts due to its cash flow.

• UBS also opined on the upward trend in Macau in mass market gaming, calling LVS the best positioned firm within this segment.

• Finally, Imperial Capital upgraded the shares from "in-line" to "Outperform" last week as well.

• The company's next phase of its property on Cotai is due to open in the next month which should generate positive headlines.

• Hong Kong just posted record air traffic for July. This should bode well for Macau gaming revenues given it is just across the bay.

Four additional reasons LVS is a good long term pick up for under $43 a share:

1. The stock is selling near the bottom of its five year valuation range based on P/E, P/S, P/B and P/CF. The median price target held by the 23 analysts the cover the stock is $65, roughly 50% above the current stock price.

2. The company averaged better than 20% revenue growth over the past five years and the stock sports a five year projected PEG going forward of less than 1 (.90).

3. LVS has a solid balance sheet, quadrupled operating cash flow from FY2009 to FY2011 and pays a dividend of 2.4% to boot.

4. The stock bounced nicely off technical support and recently crossed over its 50 day moving average.

About Macau: LVS will be able to maintain strong revenue through new hotel rooms and operations. There have been some red flags raised about money laundering, but I believe that this will only drive appreciation since it is very unlikely that anything will be proven (to say nothing about whether it happened in the first place). July Macau market was soft with market win up 1.5%. However, August trends look very bright with the figure tracking towards 7% or better. Combined with the growth trajectory for Cotai Central and reduced exposure to Macau, LVS is easily a buy.

More Technicals

Since carving out a bottom with a classic high-volume hammer candle in late July, Las Vegas Sands has staged a convincing trend reversal. The positive price action has been confirmed by bullish developments in volume, with the last two advances occurring on above-average volume, and the last two consolidation periods occurring on below-average volume.


The most recent spate of digestion has come in the form of a bull flag. With the rising 20-day moving average (purple line in chart) approaching the 50-day moving average (blue line), it appears the flag might be ready for resolution to the upside.

Therefore, to exploit the expected breakout, and based on the facts above the following options trade is recommended…..

**OPTION TRADE: Buy the LVS Dec 2012 45.000 call (LVS121222C00045000) at or under $2.10, good for the day. Place a protective stop limit at $0.80 and a pre-determined sell at $3.50.


”Success is simple. Do what's right, the right way, at the right time.”


Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.



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