Can Las Vegas Sands’ Stock Hit $2 Again?

Las Vegas Sands’ (NYSE: LVS) subsidiary Sands China Ltd. recently obtained a debt covenant waiver associated with a $2 billion of revolving credit facility in order to strengthen its cash position and sail through the crisis. With the coronavirus pandemic drying up nearly all revenue streams for Las Vegas Sands, it continues to incur recurring administrative and maintenance costs. The company operates one resort in Las Vegas (currently closed), five in Macau (currently operational with restrictions), and one in Singapore (currently closed). While Las Vegas Sands’ stock hit $2 during the 2008 financial crisis, we believe that its chances of doing so this time around are pretty low. However, the company’s stock could observe a significant fall if the coronavirus pandemic spirals out of control globally over the coming months.

Trefis compares Las Vegas Sands’ performance in the current crisis with the Great Recession of 2008 in an interactive dashboard analysis, 2008 vs. 2020 Crisis Comparison: How Did Las Vegas Sands Stock Fare During Coronavirus Crisis Compared to S&P 500? 

Las Vegas Sands Lost More Than 90% Of Its Value During The 2008 Crisis

• The 2008 financial crisis was triggered by the fall of Lehman Brothers and had a ripple effect across industries leading to widespread corporate defaults.
• Las Vegas Sands stock tanked from $133 in October’07 to $2 in February’09 – representing a 98% loss over the period.
• In 2006, Las Vegas Sands generated $2.2 billion of net revenues from its two properties, one in Vegas and one in Macau.
• Moreover, the company’s Singapore property (Marina Bay Sands) and Cotai Strip resorts in Macau were under construction.
• Before the 2008 crisis, the company’s total debt stood at $7.5 billion, and nearly half of it was due to investments in the U.S.
• Due to the economic downturn of 2008, the company’s auditors had cast doubts over Sands’ ability to continue as a going concern. However, after the capital raise of $2.1 billion in November’08, the auditors re-instated their trust, and soon, the stock climbed from the lows of $2 in February’09 to $10 in December’09.

Is Sands’ Likely To Default On Its Debt Again?

• Per recent filings, Sands’ corporate debt stood at $12 billion, with $2 billion to be repaid by 2023.
• The company expects its $6.5 billion cash in hand (including additional credit facilities) to cover fixed monthly charges of $355 million for 18 months.
• Also, Sands’ has a relatively variable bottom line with gaming taxes accounting for 50% of the total expenses.
• However, the company’s capital expenditure plan in Macau and Singapore could be hit by the low-cash situation and negligible availability of labor.
• In 2019, the company generated $13.7 billion in annual revenues and $3 billion of operating cash flow, and over the last three years, its operating and net margins have averaged around 27% and 20%, respectively.
• Though the margins are likely to trend downwards due to the ongoing crisis, the company is unlikely to default on its $2 billion of debt due by 2023, which can be covered by just one year of operating cash.
• That said, it is interesting to note that Sands’ corporate bonds continue to trade at low yields in debt markets despite tensions of a prolonged recession amongst equity investors  -reinforcing our belief that the company’s debt remains manageable for now.

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