Las Vegas Sands Long-Term Idea with Short-Term Issues, Says Analyst

Las Vegas Sands (NYSE:LVS) remains beholden to a sluggish Macau recovery ahead of its third-quarter earnings report. That is prompting at least one analyst to take a tepid view of the stock.

In a note to clients Wednesday, Roth Capital analyst David Bain reiterates a “neutral” rating and $47 price target on Sands, saying the company is likely to emphasize long-term conviction on the Asia-Pacific region (Macau and Singapore) despite limited near-term visibility.

While the structural visitation impediments should diminish within the next few months, a catalyst for Macau visitation/earnings, we believe it is already captured in consensus estimates,” said the analyst.

Traffic to the special administrative region (SAR) is trending higher this month. However, the world’s largest casino center remains hamstrung by slow tourist visa approval times, among other issues.

LVS is the largest Macau operator. It delivers results for the September quarter today after the close of US markets. Wall Street is calling for a loss of 67 cents a share on revenue of $674.34 million. Analysts are forecasting total adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) loss of $187 million, with a loss of $101.3 million sourced from Macau.

Evolving Views on Macau Recovery

When the coronavirus pandemic initially burst onto the scene earlier this year, forcing a 15-day closure of Macau gaming properties in February, the pervasive view was that concessionaires there would struggle for the bulk of 2020. That’s with a possible fourth-quarter recovery setting the stage for a deeper recovery in 2021.

The forecast, however, was speculation. The reality is that the current quarter revenue and visitation numbers will exceed the low bar set during the first nine months of this year. However, recovery timelines are being pushed out as far as 2022 amid weakness in the VIP segment and Beijing’s heavy-handed approach to cross-border money flows.

“We believe some of these issues may depress Macau stock multiples until there is higher visibility,” said Bain.

The analyst adds that visitation pickup may not be as “acute” as some previously hoped, and that day trips to the gaming hub, previously an integral driver of tourist volume, will “take some time to return to normalcy.”

Talking Las Vegas

In its home market of Las Vegas, LVS previously acknowledged struggles with executives offering candid commentary about the state of the largest domestic gaming market following the operator’s second-quarter earnings report. LVS owns the Palazzo and Venetian in Las Vegas.

Bain said Sands will likely be “transparent” regarding Sin City woes. The analyst notes that while a COVID-19 vaccine would be a broader market positive, consumer skepticism means it could be at least six months before a virus treatment positively affects the Las Vegas convention business.

Just six percent of the analyst’s $47 LVS price target is derived from Las Vegas, with the rest attributable to Macau and Singapore.

Bain is similarly lukewarm on Sands rivals MGM Resorts International (NYSE: MGM) and Wynn Resorts (NASDAQ:WYNN), another Macau-centric name. He rates both of those stocks “neutral.”

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