In March, Las Vegas Sands (NYSE: LVS) announced the sale of the Venetian Las Vegas to pursue high growth opportunities in the U.S. and abroad. With the reimplementation of restriction measures in Guangdong, the Macau casino business is likely to face near-term headwinds from low tourist numbers. Sands has a strong presence in Macau and the resumption of quarantine-free travel from Mainland China is key to its top-line recovery. However, casino expenses, which largely include gaming taxes, account for around 50% of total expenses. Thus, the company reported just $1.3 billion of operating cash outflow despite a 74% revenue contraction last year. Given Sands’ leadership in Macau’s mass-market gaming business, the likelihood of making an entry into the U.S. sports betting industry, and the expansion of Marina Bay Sands, Trefis believes that the stock is poised for long-term gains. We highlight the historical trends in revenues, earnings, and stock prices of LVS in an interactive dashboard, Las Vegas Sands (LVS) Stock Has Lost 19% Since 2017 Primarily Due To Unfavorable Change In Revenues
Comparison of financial metrics with MGM Resorts
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In 2019, Las Vegas Sands and MGM Resorts reported $13.7 billion and $12.9 billion of total revenues, respectively. With higher exposure to Macau, Sands’ top-line observed a contraction of 74% (y-o-y) as compared to 60% (y-o-y) by MGM Resorts in 2020. Notably, both companies have a comparable long-term debt of around $13 billion on their balance sheet. While Sands is exiting the Las Vegas gaming market to explore better opportunities, MGM Resorts has a strong presence in Las Vegas and other U.S. regions.
Interestingly, the shares of MGM Resorts are trading 35% above pre-Covid levels, assisted by the growing popularity of its sports betting application, whereas the shares of Las Vegas Sands are nearly 20% below pre-Covid levels. Does it indicate a good buying opportunity in Las Vegas Sands? (Note: explained in our previous article below)
[Updated 03/18/2021] – Asian portfolio and sports betting entry can generate superior returns
Earlier in March, Las Vegas Sands (NYSE: LVS) took a historic step by announcing the sale of its Vegas property to Apollo Funds and VICI Properties for $6.25 billion. With multiple states legalizing sports wagering, the company’s peers including MGM Resorts, Penn National Gaming, and Wynn Resorts launched their sports betting applications in 2020. Sands’ has not announced its entry into the U.S. sports betting and iGaming industry but has a hidden presence with William Hill’s marquee site at Sands’ Venetian and Palazzo properties in Las Vegas. Given the uncertainty associated with the company’s decision to enter the sports betting industry or expand its Asian portfolio, Trefis compares profitability across geographies to highlight strong upside potential in the stock as the company reveals its investment plans in the near future. We believe that the stock has a sizable upside if new investments provide returns comparable to the Singapore property. Our interactive dashboard analysis highlights Las Vegas Sands stock performance during the current crisis with that during the 2008 recession.
Sands’ revenue and margin contribution from different geographies
In 2019, Sands’ Macau, Singapore, and Vegas properties contributed 63%, 22%, and 15% of the $13.7 billion revenues, respectively. More importantly, Vegas properties reported the lowest EBITDA margin of 26% compared to 54% by Singapore and 36% by Macau. Thus, investor returns are majorly driven by Sands’ Macau and Singapore businesses.
As the company re-invests the capital from the Vegas property sales in assets with a potential to generate a high 54% EBITDA margin (as the Singapore property does) in the long-run, shareholders will benefit from higher profitability and an expanding top line – resulting in long-term capital gains.
What If Sands allocates excess cash in Singapore and reduces its debt burden?
In 2019, Sands announced the extension plan of Marina Bay Sands (Singapore property) with a targeted cost of $3.4 billion. The extension project will increase the number of rooms by almost 50% with an expectation of similar growth in other segments including gaming, shop rentals, and food & beverage services. With a higher capacity, Sands’ EBITDA from Singapore can increase by 50% – resulting in excess return on invested capital. Thus, the stock has strong upside potential from current levels assuming that the company’s new investments generate returns comparable to Marina Bay Sands.
Along with a potential entry into the U.S. sports betting and iGaming industry, the company has also been looking for acquisition targets in Asia. Thus, the freed-up capital opens a plethora of opportunities for the company and likely gains for shareholders.
Do Las Vegas Sands’ peers offer better gains? Las Vegas Sands Stock Comparison With Peers summarizes how LVS compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.