Jefferies initiated coverage on LVS with a buy rating. Fair enough. Using the correct share count drops the price target by 20%. Still a buy?
As we pointed out in our 09/14/09 post, “Check Your Models”, many analysts continue to use the wrong share count in calculating earnings and price targets. This isn’t a minor error. In Q1, LVS reported a loss, so ordinary shares of 660 million were used as the share count. However, going forward, we expect LVS to be continually profitable so fully diluted shares must be used. Since LVS has a convertible outstanding and significant common stock warrants, the share count will be much higher – 815 million per our math.
Jefferies price target is $30 based on 660 million shares, implying an equity target value of $19.8 billion. If the analyst was using an appropriate fully diluted share count close to our estimate, the price target would only be $24. Since the stock closed yesterday over $24, this stock can hardly be rated a Buy with that price target.
Will Jefferies downgrade the stock upon recognition of their error? Unlikely. Look for a subtle model and valuation revision magically resulting in the same $30 price target.