The shares of Las Vegas Sands (NYSE: LVS) are down by almost 40% from pre-Covid levels despite a recovery in broader markets and rising discretionary spending. The company took a monumental decision last year by announcing the sale of its Vegas property and completely depending on Asian business for future earnings. In the last few years, the company’s Macau business observed strong growth assisted by new property openings, rising share of mass-market gaming wagers, and higher tourist visitations. However, the uncertainty surrounding renewal of gaming licenses in Macau has lowered investor confidence – leading to a steep fall in casino stocks. Interestingly, Sands reported just $1.3 billion and $105 million of operating cash burn in 2020 and H1 2021, respectively, highlighting the company’s effective cost control measures. Our interactive dashboard highlights Las Vegas Sands During 2008 Recession vs. Now.
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 106% from the lows seen on Mar 23, 2020, with the Fed’s multi-billion dollar stimulus package keeping the economy afloat during the prolonged lockdown and the vaccination drive allowing things to gradually return to near-normal conditions despite several waves of Covid infections.
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 $138 in October 2007 (pre-crisis peak) to levels of around $2.28 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 $15 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’ reported strong fundamentals before the pandemic
Las Vegas Sands’ revenues observed a 17% growth from $11.7 billion in 2015 to $13.7 billion in 2019, majorly assisted 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. In 2020, the company observed a 73% (y-o-y) contraction in revenues, reported a net loss of $1.6 billion, and burned $1.3 billion of operating cash. However, the company burned just $100 million in the first six months of 2021 assisted by cost control measures and suspension of dividends.
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-September 2020: Recovery of demand, with the phased lifting of lockdowns – no panic anymore with number of cases appearing to have plateaued
- October 2020-February 2021: Unprecedented surge in Covid cases forcing a fresh round of lockdowns across the nation
- Since March 2021: Ongoing vaccination drive and gradual re-openings drive an improvement in demand – buoying market sentiment
Considering the historical financial performance, low cash burn rate, and a leadership position in Macau’s mass market gaming business, we believe that the stock is poised for long-term gains.
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