Las Vegas Sands Offers Big Upside, Says Deep Knowledge Investing Analyst
Posted on: August 15, 2020, 12:09h.
Last updated on: August 16, 2020, 01:36h.
For patient investors, Las Vegas Sands (NYSE:LVS) could be one of the better ideas among gaming equities. It offers potentially significant upside over the next several years, according to Gary Brode, founder of Deep Knowledge Investing.
In a recent report on the largest US gaming company by market capitalization, Brode lays out a base case scenario where the Venetian operator could become a $70 stock over the next two to five years. That implies upside of more than 45 percent from the Aug. 14 close.
Brode, who has more than three decades of experience in the securities industry, acknowledges his firm held LVS shares from late April to June 10, as the stock rallied from $43 to $52. Deep Knowledge subsequently took profits on that trade.
The stock has been trading below that $52 level in recent weeks, and both Singapore and Macau have started to reopen,” he wrote in a recent report. “Anyone who missed this opportunity the first time around is getting a great second chance now.”
Sands, the operator of five Macau integrated resorts, surged 9.43 percent this week on news that Guangdong province will resume issuing individual visit scheme (IVS) visas on Aug. 26, with the rest of China following suit starting Sept. 23.
Saying that’s good news for LVS and other Macau concessionaires is an understatement. In 2019, nearly half of all visitors to the gaming enclave arrived from Guangdong, and almost three-quarters of those did so using IVS permits.
$70 Could be Floor, not Ceiling
Brode points out that over the course of the coronavirus pandemic, investors are reacting to incremental good news, indicating that some market participants are wagering that companies that were healthy prior to COVID-19 can regain that solid footing when the world returns to normal.
LVS fits that bill. The operator earned $3.26 a share in 2019 and was poised to be in the $3.70 area this year, prior to the pandemic. Buoyed by dominant positioning in Macau and Singapore, the industry’s strongest balance sheet, and highest dividend, LVS was viewed in the investment community as one of the highest-quality gaming equities.
While the pandemic forced the suspension of the dividend, Chairman and CEO Sheldon Adelson said he’d like to restore the payout as soon as is practical, and the company is forging ahead with expansion plans in the two Asia-Pacific markets. It has the cash to do that and survive more than 18 months in a zero-revenue environment.
As Brode notes, investors could be rewarded for their patience. In a scenario where it takes two years to return to normalcy, the Deep Knowledge founder says if LVS trades at 20x earnings of $3.70 a share, it would jump to $74 with a dividend yield of 4.3 percent, assuming the payout is restored.
Investors that wait it out that long with LVS could be handsomely rewarded, as the effects of expansion projects, including a fourth tower at Marina Bay Sands in Singapore, the Londoner in Macau, and others reach the bottom line.
“Investors at that point would start to benefit from growth due to the completion of construction in Macao and Singapore, and if earnings projections trend towards $4.00 – $4.50 range, we could see a stock price in the $80 – $90 range,” said Brode.
Split the difference and call that $85, and the potential upside from the Aug. 14 close is 77 percent.