Las Vegas Sands Has Options Investor Betting Casino Company Will Grow

Posted on: September 20, 2019, 02:59h. 

Last updated on: September 20, 2019, 11:16h.

Most people bet in casinos. However, one investor is making a big bet on a casino company, the Las Vegas Sands Corp. (NYSE: LVS)

Fireworks celebrate the 2016 grand opening of The Parisian Macao, a Las Vegas Sands resort in Macau, the Chinese Special Administrative Region. Sands owns four casinos in Macau, the world’s largest gaming market. (Image: Bobby Yip/Reuters)

On Tuesday’s edition of Fast Money on CNBC, Michael Khouw, president of Optimize Advisors, revealed that an options trader placed a $4 million order that stock for LVS will be priced at $63.20 per share by January.

This is somebody who is betting on a pretty good bounce after we’ve seen a little bit of weakness in Las Vegas Sands recently,” Khouw said on the show.

The stock, traded on the New York Stock Exchange, dropped 80 cents per share Thursday, closing the day at $57.58 per share.

That means for the investor to make money on the trade, the stock must increase by 9.8 percent between now and January.

On May 3, LVS closed at $68.44. A month later, it closed at $52.94. That’s indicative of the roller coaster style movement the stock has made over the last three months. By July 23, the stock recovered to close at $65.22, only to crater to $51.41 on Aug. 15.

However, it appears the options investor has company, as some analysts are bullish on the company run by Sheldon Adelson.

Macau Drives Sands

The most recent downtrend in the stock was tied to the unrest in Hong Kong and concerns it might have an effect in Macau, which, like Hong Kong, is a Special Administrative Region. There have also been concerns about the impact the US-China trade war may have on the world’s largest gaming market.

The world’s largest casino company is heavily invested in Macau, with four casinos there. Therefore, any economic downturn there would create some ripples for the Sands. As Trefis noted in its analysis of the Sands stock, about 70 percent of the Sands casino revenue in 2018 came from its Macau properties.

“The company’s results for the current quarter are definitely going to feel the pinch,” Trefis’ report stated. “However, these near-term issues do not take away from the company’s long-term value.”

Trefis noted that the Sands resorts have been drawing more of its patrons from mainland China, and that share continues to grow.

Trefis on Thursday valuated Sands stock at $70 per share.

‘Cash Flow’ Machine

Travis Hoium of The Motley Fool said LVS really shouldn’t be looked at as a growth company. Instead, he considered it a “cash flow machine,” as the company gets revenue from casinos, hotel stays, and other ancillary resources, such as resort shops.

Even with the Sands’ debt increasing in recent years, the company’s cash flow, thanks to its Macau holdings, has significantly outpaced that, he added. The LVS debt-to-EBITDA (Earnings Before Tax, Depreciation, and Amortization) ratio is 2.2 over the past 12 months.

Another potential reason the Sands stock may suddenly jump, Hoium wrote, is its pursuit of an integrated resort in Japan. Japanese officials have given approval for three casinos to be developed, and Adelson has his sights set on landing one in Tokyo or Yokohama. However, it’s unlikely any sites will be announced until next year at the earliest. And with that, the resorts won’t open until well into the next decade.

Still, Hoium gives Sands a “buy” rating.

“This is a great dividend stock, and a 5.3% yield in today’s market is nothing to scoff at,” he wrote. “That alone would be why I would buy shares. Any growth from Las Vegas Sands’ current operations or new developments would be icing on the cake.”