RAGING BULL, starring Robert DeNiro… Or is it Rob Goldstein?
When it comes to Macau, the answer is easy—Las Vegas Sands (LVS) CEO Goldstein.
On LVS’ recent first quarter earnings conference call, Goldstein described himself and his colleagues as “raging bulls” on the future of Macau and expressed confidence that his company’s multibillion-dollar investments in the market—with another $4.5 billion to come—will earn their targeted 20 percent returns.
Goldstein and his colleagues were more than bullish as they commented on a blow-out first quarter that saw Macau EBITDA go from negative $11 million last year to a positive $398 million; not to mention, Singapore also soared from $121 million to $394 million.
Both markets are early in their recoveries. If Macau was a golf match, the company hasn’t even gotten to the first tee yet, Goldstein said. It’s still on the driving range.
Investors have noticed. Not only did the stock jump nearly 4 percent in response but it now has more than doubled from its 52-week low of $28.88 as optimism spreads over the reopening of China, and the Far East generally.
The outlook for business improvement can be stated in simple terms, such as: 31 percent of hotel rooms to come back online in coming months, air service to normalize, pent up demand to be met, conversion of low-margin junket customers into more profitable direct marketing by cutting out the middleman, and, of course, those billions of dollars in property enhancements and expansions.
No doubt business is set to grow, and maybe for a very long time.
The question is how much of that optimism is now in the stock, and at what point the Chinese government will say enough is enough and clamp down on Macau’s casinos? That is the bull-bear debate worth having.
The other question: if Goldstein plays DeNiro’s role of Jake LaMotta in this Raging Bull remake, who plays Joe Pesci’s role as his brother?
“THE COW IS OF THE BOVINE ILK…
…One end is moo, the other, is milk” – Ogden Nash
Monarch Casino shared the opening day of casino earnings report season with LVS and, as almost the opposite in business model, produced opposite investor reactions.
The stock sank almost 5 percent as earnings slightly missed expectations.
The miss was entirely because of the historic amounts of snow in the Sierra Nevada mountains that kept Californians from driving to Reno. Monarch’s other property, its namesake in Black Hawk, Colorado, continued to build business following its expansion and the lifting of the state’s betting limit. That growth should continue and the snow season will end, but when investors decide to have a sour attitude…well…
The bear case on Monarch is that Reno is mature, Black Hawk will mature fairly soon and, given typical regional casino valuations of seven and eight and maybe nine times EBITDA, its current stock price in the low- to mid-$70s is about where it should be.
For many companies, the answer is to invest in growth, and Monarch mentioned possible acquisitions in its earnings announcement, but unless and until financially conservative CEO John Farahi finds a target, Monarch is what it is, as the saying goes.
And what Monarch is, is a cash cow. The company will generate somewhere over $160 million in EBITDA in the coming year, and upwards of $200 million would not be unreasonable as Black Hawk matures. It has precious little in the way of maintenance for CapEx to spend and with fewer than 20 million shares outstanding, the math is simple. Take away $20 million-plus from its just-initiated dividend and the soon to be debt-free company is generating way more money than needed.
In other words, this cash cow can be milked prodigiously for shareholder returns.
Talking about returns, Farahi’s son, former COO and former heir-apparent David Farahi, has just been appointed executive chairman of Kindbridge, an organization that helps people with gambling problems. He is also executive chair of gaming software company Quick Gaming Intelligence.
To say that David is highly respected is an understatement. Monarch stock would jump significantly if he were to return as CEO, giving the family-controlled company another generation to follow on the outstanding work of John and his brothers in building the business.
In the meantime, John is looking for an acquisition, Monarch could be an attractive take out target itself, and the cash just keeps on growing.
