The first second quarter earnings reports are out and they appear to be establishing a theme: the industry’s funk in the U.S. might have been just a spring phenomenon as June was stronger than May and improvement appears to have accelerated in July.
Of course, we won’t really know about July until third quarter earnings are released in October and November, but we’ve gotten hints.
In addition to the anecdotal reports of casino operators, there are the monthly revenue reports released by various jurisdictions that show mixed results, which means improved results given the May and June declines.
May revenues fell 3.38 percent. June improved to a decline of 1.66 percent. And so far in July—Nevada and a few small jurisdictions hadn’t reported as of this writing—results are mixed.
The biggest noise about June came not in the U.S. but from Macau by Las Vegas Sands CEO Sheldon Adelson.
The market there bottomed out in June and there is no reason to believe it is going to reverse, he said. Indeed, LVS properties in Macau enjoyed their first year-over-year growth in mass and premium-mass segments in June, the company reported.
As so often happens, Adleson’s comments grabbed headlines, and also caught investor attention. The stock jumped 6.2 percent over the next two days.
The big jump came despite LVS missing earnings forecasts from analysts, showing that investors have faith in Adelson and his bullish talk.
Equity analysts were all over the place in reaction with some raising targets, others lowering them and others standing in place.
Carlo Santarelli of Deutsche Bank issued a bearish report.
Management called a bottom, but “visibility remains very challenged and competition is about to heat up,” he said in reiterating his hold rating and putting a $42 target on the stock that was near $48 in pre-market trading.
Others, were more bullish. Rachel Rothman of Susquehanna Financial, for example, maintained her positive rating and $57 target, saying management has told investors everything they would want to hear, including a bottom in Macau, higher margins and commitment to returning cash to investors.
Rothman’s target is based on expected $3.13 a share in cash flow next year, which she said will better illustrate LVS’ cash generating ability than earnings per share, which will be hit by depreciation costs as Parisian opens in Macau.
She estimates LVS will earn $2.10 a share this year and $2.46 next, and will generate $3.636 billion and $4.311 billion in EBITDA.
David Katz of Telsey raised his target $3 to $50 saying he is guardedly optimistic about Macau where he sees the market having reached, or nearing, stabilization.
Katz raised his EBITDA forecasts to $3.378 billion this year and $3.505 billion next.
Chad Beynon of Macquarie also raised his target saying he is now more certain about how Macau will perform this year and next after recent visits there.
His target of $52 is up $2.
Meanwhile, Felicia Hendrix of Barclay’s raised the question that is most in the mind of investors as she shaved a dollar off her Las Vegas Sands target to $49, saying she expects new properties to cannibalize Macau operators and sees lower VIP play in Singapore.
Wynn Palace and LVS’ Parisian will increase hotel capacity by 15 percent in a market already facing declining RevPAR. They will grow the market, but they also will cannibalize, Hendrix said.
