Is LVS Stock A Gamble?

The shares of Las Vegas Sands (NYSE: LVS) have declined by 35% since the beginning of the year as the travel and tourism industry came to a grinding halt due to the pandemic. The current recessionary environment has affected the company’s ability to generate revenues, limit losses, and pay dividends. While the slump in travel demand is likely to persist for a couple of quarters more, the company has taken a string of measures to preserve its cash reserves by slashing capital expenditures, suspending dividends, and trimming administrative expenses. Per recent filings, Sands’ reported $7 billion of available liquidity which can support operating losses for more than a year. Thus, we believe that the stock can achieve pre-Covid levels with the advancement in vaccine trials and a gradual uptick in travel demand. We compare Las Vegas Sands’ stock performance during the current crisis with that during the 2008 recession in an interactive dashboard analysis.

Timeline of 2020 Crisis So Far:

• 12/12/2019: Coronavirus cases first reported in China
• 1/31/2020: WHO declares a global health emergency.
• 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
• 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
• From 3/24/2020: S&P 500 recovers 51% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.

In contrast, here’s how LVS and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

• 10/1/2007: Approximate pre-crisis peak in S&P 500 index
• 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
• 3/1/2009: Approximate bottoming out of S&P 500 index
• 1/1/2010: Initial recovery to levels before accelerated decline (around 9/1/2008)

Las Vegas Sands vs S&P 500 Performance Over 2007-08 Financial Crisis

LVS stock declined from levels of around $94 in September 2007 (pre-crisis peak) to levels of around $1.50 in March 2009 (as the markets bottomed out), implying LVS stock lost 98% from its approximate pre-crisis peak. It recovered post the 2008 crisis to levels of about $10 in early 2010 – rising by 555% between March 2009 and January 2010. In comparison, the S&P 500 Index first fell 51% in the wake of the recession before recovering 48% by January 2010.

Las Vegas Sands’ Fundamentals in Recent Years Look Strong

Las Vegas Sands’ Revenues grew by 17% from $11.7 billion in 2015 to $13.7 billion in 2019, primarily driven by strong growth in Macau. Also, the company’s margins expanded from 17% to 20%, resulting in a sizable 42% EPS growth from $2.47 in 2015 to $3.50 in 2019. However, the company’s Q2 2020 revenues were a staggering 98% below the level seen a year ago, and the EPS figure for the quarter plunged from $1.24 in Q2 2019 to $(1.07) in Q2 2020.

CONCLUSION

Phases of Covid-19 crisis:

• Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
• Late-March 2020 onward: Social distancing measures + lockdowns
• April 2020: Fed stimulus suppresses near-term survival anxiety
• May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
• July-October 2020: Poor Q2 results and lukewarm Q3 expectations, but continued improvement in demand and a decline in the number of new cases and progress with vaccine development buoy market sentiment

Going by the historical performance and in view of a quick recovery in Macau, we believe that the stock can completely recover to pre-Covid levels supported by more than 18 months of cash runway.

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