Is There An Upside For LVS Stock At $45?

by Trefis Team
Las Vegas Sands
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The shares of Las Vegas Sands (NYSE: LVS) have gained 30% since the 5-year low of $33 in March. With the stock currently around $45, we believe that Las Vegas Sands has low upside potential due to the high P/E multiple of 14 and a grim near-term outlook of Macau Gaming Market. Our dashboard Why Las Vegas Stock moved -22% highlights the trends in revenues, earnings, and valuation multiple. Over the last three years, Las Vegas Sands’ net income has remained relatively flat at $3 billion majorly due to an 8% growth in revenues and a 1-percentage-point reduction in net margin. That said, the company’s stock increased by just 10% from $63 in 2017 to $69 in 2019, largely from the 10% expansion of P/E multiple.

Moreover, earnings growth on a per-share basis has also remained level at $3.50 as the contraction in net margin was compensated with a 2.6% reduction in shares outstanding. Since 2017, the company has invested $2 billion in share repurchases and $9 billion in dividend payouts with an average dividend yield of 5%. Per recent filings, the company has suspended buybacks and dividends payouts in the near-term to preserve cash. Also, the $6.5 billion (including credit facilities) of available liquidity can support fixed costs for more than 18 months.

Sands’ P/E ratio has reduced from 18 at the end of 2017 to 15 recently. While the stock might look attractive given that the P/E ratio is at the lowest level in recent years, the upside potential for the stock remains low keeping in mind the fact that the Macau Gaming Market is expected to recover slowly by Q4.

By when can LVS stock recover to pre-crisis levels, and what’s the likely trigger?

  • Sands’ generates 65% of its total revenues from Macau, with a 50% market share of the mass gaming segment.
  • In the past three years, the company’s mass-market gaming volumes have swelled by 16% from $21 billion in 2017 to $24.5 billion in 2019.
  • While the stringent restriction measures in China have led to a 90% fall in tourist visitation in Macau but, with the ongoing efforts to liberalize travel rules in the region is likely to revive Macau’s economy by the year-end.
  • The monthly release of tourist and gaming statistics by the city’s regulator will lay down the time-line of a full recovery.

More so, if China gets hit by a second wave of the pandemic in the coming months, we believe the stock will observe another round of sell-off. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus. Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. It complements our analyses of coronavirus impact on a diverse set of Las Vegas Sands’ peers, including Wynn Resorts and MGM Resorts. The complete set of coronavirus impact and timing analyses is available here.

While Las Vegas Sands’ stock offers limited upside potential, which S&P 500 component stocks have the best chance of outperforming the benchmark index? Our 5 In the S&P 500 That’ll Beat The Index: TWTR, ISRG, NFLX, NOW, V look promising.

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