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Due to huge growth in Macau -- China's only legal gambling district and the world's most popular casino hotspot -- shares of the integrated resort company, Las Vegas Sands (NYSE: LVS), are on the upswing.
Macau, often termed the "Monte Carlo of the Orient," thrives on its casino industry. In 2012, Macau's casino operations brought in nearly $38 billion in revenue, a 13.5% increase from the year earlier. This year, industry analysts expect the region's casino industry revenue will increase another 11% to 12%. China's large population, its growing middle class, and the improving economy are all expected to contribute to this growth.
The company's Chinese outfit, Sands China, contributed to 60% of the Las Vegas Sand's total 2012 revenue. Sands China dominates the Cotai Strip -- a casino development area in Macau that joins the islands of Coloane and Taipa. Sands China controls over half the gaming tables on the strip. And, analysts with Thomson One expect the company's two new casinos, Sands Cotai Central and another property in development, will continue to take market share from competitors while driving future revenue growth.
With this upbeat outlook, shareholders appear optimistic.
From a technical perspective, LVS stock has made a remarkable recovery. After suffering a near-death experience, hitting a low of $1.38 in 2009, shares steeply ascended, hitting a multi-year high of $50.70 by 2010.
Following this high, the stock consolidated in a relatively narrow trading range for nearly two years. Between late 2010 and 2012, shares flip-flopped between support in the low $30s and $50.70 resistance.
In early 2012, on strong momentum, shares briefly broke $50.70 resistance, touching a high of $57, before retreating to a multi-year low of $32.05.
In early 2013, shares once again broke $50.70 resistance, attempting to challenge the $57 high. Although unsuccessful, the stock managed to hold around $50.70, a level which now acts as important support. The fact that the stock did not fall below $46, a secondary support level, was an important technical breakthrough. In all previous attempts to challenge $50.70 resistance, shares dipped below that secondary support level soon after.
Shares are currently on a minor uptrend and show strong upside potential. If the stock can successfully challenge nearby $57 resistance, it would not only break key historical resistance dating back to 2008, but would also bullishly complete an ascending triangle pattern.
According to the measuring principle for a triangle, calculated by adding the height of the triangle to the breakout level, shares could reach a price target of $81.95 ($57-$32.05 = $24.95; $24.95+$57 = $81.95). At current levels, this target represents about 44% potential returns.
The bullish technical outlook is supported by strong fundamentals. Due to anticipated growth in Macau's casino industry, analysts project Las Vegas Sands' first-quarter 2013 revenue will increase 17% to $3.24 billion from $2.76 billion in the comparable year-ago quarter. For the full 2013 year, analysts expect increased gambling interest will push the company's revenue up 18%, to $13.15 billion compared with $11.13 billion last year.
The earnings outlook is similarly solid. Although analysts anticipate a slight earnings drop in the first quarter of 2013, they expect a substantial 25% increase for the full 2013 year, with earnings reaching $2.68 per share, up from $2.14 per share last year.
In addition to a bullish technical and fundamental outlook, the company offers an attractive forward annual dividend yield of about 2.6% ($1.40 per share). The company paid its first annual dividend of $1 in 2012. Given that it has already raised its payment $0.40, the outlook for future dividend increases is positive.
Risks to consider: The gambling industry in Macau is growing at a hyper-fast rate. However, a slowdown in the Chinese economy, over-saturation of the casino market and online gambling could affect the company's bottom line. For now, however, Las Vegas Sands is benefiting from the growing Asian casino industry, which is expected to remain strong into the foreseeable future.
Recommended Trade Setup:
-- Buy LVS on a break above $57 resistance-- Set stop-loss at $47.53-- Set initial price target at $81.95 for a potential 44% gain by late 2013
A number of technical failures point to a great opportunity for short sellers to profit.
Wall Street's elite use it to stack the deck in their favor, but there's nothing stopping you from doing it too.
Goldman's bearish outlook tells me that value is going to be an important quality when assessing stocks for the next few years.