Even after reporting a poor fiscal 2016 second-quarter earnings and revenue that missed the analyst’s estimates, the shares of the casino and resort operator, Las Vegas Sands Corp. (NYSE: LVS) has appreciated by 20% to $57.54 in about two months’ time. The analysts and market participants attribute the increase in the share price to the signs of growth in Macau’s mass gaming market. However, we have a bearish view of the stock because of the concerns explained below.
Let down by the Casino segment, the Las Vegas-based company reported fiscal 2016 second-quarter revenue of $2.65 billion, down from $2.92 billion in the prior year’s corresponding quarter. The revenue estimate of Zacks analysts was $2.74 billion.
For the quarter ended June 2016, Las Vegas recorded a net income of $327.97 million or $0.41 per share, compared to $469.17 million or $0.59 per share in the similar quarter of 2015. Excluding charges, the Q2 2016 adjusted net income of $411.31 million or $0.52 per share was lower than Q2 2015 adjusted net income of $481.46 million or $0.60 per share and also missed the Wall Street estimates of $0.56 per share.
The argument made in favor of Las Vegas is that the Macau gaming revenues have bottomed out and we would see a reversal soon. However, a look at the casino operations reveals a different picture. While the Macau gaming revenue declined by 9.2% in the second quarter, the Venetian Macau resort reported revenue of $666.1 million, down 9.1% y-o-y. The Sands Cotai Central resort posted a 14.7% decline in revenue to $472.7 million.
The Four Seasons Macau’s revenue plunged 38.8% to $125 million. Finally, the Sands Macau resort’s Q2 revenue was $185 million, down 23.4% on a y-o-y basis. The resort wise revenue shows that the Las Vegas company is quickly losing the market share. Furthermore, casino and resort operators such as Melco Crown, WYNN resorts (NASDAQ: WYNN), and MGM Resorts (NYSE: MGM) have opened new properties in Macau. The increase in the competition is expected to further hit the top line of the company as customers, in all likelihood, will get drawn to newer casinos. Thus, fundamentally, the investors will be wary of investing in the company as of now.
The chart shows resistance for the stock at 58. The proven support for the stock exists at 51. The main line of the MACD indicator has crossed below the signal line. This indicates an underlying weakness in the stock.
So, investing in a one-touch put option would be a smart decision as of now. The strike price for the put option should be 51 or higher. Finally, the binary trader should opt for an expiry date in the final week of October.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
