Paper Bought 44000 NOK Jan14 Calls for $0.37 (2.7 times usual volume) when stock was trading $2.56
Paper Bought 30000 MBI Jan14 5 Puts for $0.60 (14.4 times usual volume) when stock was trading $10.33
Paper Bought 14500 BBY Jan13 18 Puts for $2.30 (2.6 times usual volume) when stock was trading $17.99
Las Vegas may be the poster child for the casino industry, however those who know will point to the Macau peninsula and Co-Tai. To put this gambling hub into perspective, Macau is more dense than Manhattan Island and smaller in terms of sq miles. Macau is divided into North (Taipa 6.5 sq miles…the ‘tai’ in Co-tai) (including part of the peninsula) and South (Coloane 7.5 sq miles…the ‘Co” in Co-tai). It is interesting to note that LVS was the first American mover in the Macau market.
LVS now pulls 30% of its revenue from Singapore, 50% form Macau, and 20% from the USA. The hot areas have clearly been outside the US, but what is the next growth project for LVS. According to CEO Sheldon Adelson, LVS will start working on ‘EuroVegas’ in Madrid Spain. Over the next ten or so years, LVS will develop 12 hotels including 36,000 rooms, six casinos and three golf courses for a cool $22 billion. According to sources, LVS would only provide only up to 35% of the total equity for the project.
Considering Spain is crippled with a massive 24% unemployment rate & 50% youth unemployment, not to mention mountainous debt; maybe they are buying near a bottom. If this plan is executed properly, LVS’s ‘EuroVegas’ could be a “crisis moment buy”…kind of like a Warren Buffett style play, as they will be taking advantage of a very unique opportunity. The oracle reminds to be, “greedy when everyone is fearful, and fearful when everyone is greedy.”
The ‘Occupy movement’ has been really strong around the world, no that that one, the more important one…occupancy rates. According to the LVS 10k, occupancy is very strong in two of the three Macau operations…having 90%+ occupancy during the 2010 and 2011 period. Singapore jumped a huge 2000 basis points from 73% occupancy to 93% occupancy, with the average daily room rate increasing 24% too! Similarly, LVS Macau saw room rates increase 8.5% from the prior year on average (averaging their two continued operations (8.95% and 8.1%)). LVS’s Vegas operations saw room rates up 4.2% but occupancy down 2.1%. This is proof that in most cases LVS is a flight (or vacation) to quality internationally, for the ability to increase the average daily room rate while increasing occupancy is a high quality situation (ie not discounting).
Competitor WYNN saw better operations during the same time period too…seeing Las Vegas room rates up 15% and Macau room rates up 8.2%. WYNN saw occupancy up 400 bps in Macau from 87.8% to 91.8%. Bottom line, recent market conditions with respect to hotel operations has been strong but volatile. A risk to this analysis includes tough comps for next year…2010 over 2009 was an easy year as markets were better in terms of rates and profitability, however from now on given tougher competition in Macau and already tough competition in Vegas, YoY (year over year) trends will be tough to top.
The bull side to this case includes the fact that during a recent conference call LVS management said from any project they expect a 20% cash on cash return. Thus making a high hurdle rate in order to seriously explore any venture.
E-mail the author with any comments, questions, or inquiry
Alcoa is down twelve cents in pre-market trading today. Dow Futures are down twenty-two and S&P futures are down three quarters of a point. Crude futures are down a quarter of a point and gold futures are up one half of a point.
Earnings movement will continue today with Costco (COST), up almost 3% in pre-market trading. Net sales in the fourth quarter were up 14% from fourth quarter of the year before, with same store sales up 5%. Profits increased by 27% from the previous quarter. Yum! Brands (YUM) announced beating third quarter estimates, up about 23% from the same period last year. The stock is higher by about 4.7%.
Economic reports today include MBA purchase application, which measures new applications at mortgage lenders. Also, US treasury budget report around 2:00pm EST, which can be a predictor of future fiscal policy. The report measures the surplus or deficit of the federal government.
Paper sold 2652 OC Feb 25 Calls for $6.90 (10.7 times usual volume) when stock was trading $30.88
Paper bought 2208 MNKD Oct 3 Puts for $.50 (4.4 times usual volume) when stock was trading $2.58
Paper sold 5,000 TPX Oct 31 Puts for $.35 (3.1 times usual volume) when stock was trading $33.73
Today’s trade is to buy the stock at $23.00 and selling the NRG Nov 22 calls for $1.55. My break even on this trade is $21.45.
For the first time in a while AAPL is not the first mover in this space. This could turn out to be an advantage, for being first does not always equal success. Players like AMZN, HPQ, BKS, GOOG, and RIMM have all pumped out smaller tablet devices. While some are clearly more successful than others, AAPL will still need to differentiate the iPad mini with their iconic slick design and user-friendly operating system, for savvy consumers will maximize their hard earned buying power.
The market leading iPad 3 is 9.7 inches; some analysts and AAPL followers are expecting a 7.85 inch liquid crystal display (LCD). These dimensions are slightly different than the prevailing 7-inch norm. The heaviest competition is expected to come from the ANZN Kindle Fire and the GOOG Nexus 7; both of which have fresh models out on the market already. The new 7” Kindle Fire is priced at $159.00. At this price point AMZN is expected to just break even considering the cost breakdown, but everything after that, including items like books and movies, is what AMZN is really in the tablet business for. AAPL is expected to naturally price at the higher end of the market. Some reports have surfaced regarding Apple suppliers facing production delays. Staying on track for the unconfirmed rumored release date of Oct. 17th 2012 will be a challenge.
The ‘Apple edge’ really just dominates the competition. This includes the 680,000 apps, ecosystem, and massive following. It is hard to quantify Apple’s social clout, but as of late, anything they engineer turns to gold or at least a few billion in market capitalization. A lot is expected from the iPad mini, but it is hard to make judgments this early.
E-mail the author with any comments, questions, or inquiry mark@keeneonthemarket.com.
Dow futures are up seventeen and S&P futures are up two and a half. Gold futures have moved nine-tenths of a point climbing back over ninety. Metal futures, gold, silver, platinum, are slightly positive before the market opens.
Alcoa Inc. is scheduled to release its earnings report after the bell today. Alcoa produces and manages aluminum and alumina. The company mines bauxite, which is then rolled into alumina. They also produce and sell titanium and other alloy products.
Alcoa stock ($AA) is up 5.43% since January, with a 52-week low of $7.97 and a high of $11.66. The stock recently hit its ten-day high and put/call ratio is currently 0.85. Earnings have rebounded from three straight misses in 2011 and negative earnings in Q4 to beat earnings in Q1 2012. The projected earnings are $0.06, down $0.04 from the previous quarter. Quarterly revenue has been on a slight decline since Q2 2011 and are projected to be 1.7 Billion less this year than the previous year.
Alex has a master’s in economics from Suffolk University.
Questions, comments, or suggestions welcome at alexk@keeneonthemarket.com
