And Las Vegas Sands is Supposed to be Recession Proof?

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December 15, 2008

I’ll give Goldman Sachs’ analysts this much … they’re persistent, even in the face of defeat. We heard this morning the Wall Street monolith reiterated their ‘buy’ rating of Las Vegas Sands Corp. (LVS). It was a gutsy move, considering the casino company had to double the number of outstanding shares last month to raise a much-needed $2.1 billion in capital. Had they not done so – despite the punishment to existing shareholders – there was a real possibility of insolvency (at least according to Pricewaterhouse Coopers).

Even so, Las Vegas Sands is still something of a walking contradiction. They freed up some cash flow by selling assets in Macau, but they’re still expecting to open units on Pennsylvania and Singapore later next year. It’s not exactly ‘deleveraging’ when you rob Peter to pay Paul.

Regardless, the issue with Las Vegas Sands, or Wynn Resorts (WYNN), or MGM Grand (MGM), or any of the major casino names isn’t a matter of mere deleveraging. Top lines haven’t been growing, gross margins have been hit and miss, while net incomes –almost across the board – have been shrinking.

Las Vegas Sands has been the worst of the worst, losing a massive $32 million last quarter. The Macau expenses didn’t help, but it’s time somebody besides the accountants looked at the Sands’ income statement – the loss was going to happen with or without Macau. At least other casinos have managed to stay in the black, even if was a little ugly.

Anyway, it’s not just Goldman that’s behind the eight ball. Bank of America boldly came out with a neutral opinion of LVS back in January. On August 22nd – seven months later and more than 50% lower at the time - they finally came out with their sell rating. Since then (on November 13th), B of A moved back to a decisive ‘neutral’ stance.

I think at this point one thing is clear… Las Vegas Sands’ outlook is a work in progress, which doesn’t always make for the most comfortable of investments. The stock’s up today on the Goldman announcement. I have doubts about any longevity though; the recession’s cut is so deep, even the recession-proof arenas like gambling are feeling some pain.

Side note: KeyBanc Capital Markets has actually done a pretty good job of timing their opinions with Las Vegas Sands shares’ ebb and flow.

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