Shares of Las Vegas Sands (NYSE:LVS) are lower by 2.23 percent on midday trading Tuesday, extending a dismal run that saw the stock shed about six percent of its value in August amid concerns of a revenue slump in Macau.
Those concerns were validated Monday, when Macau’s Gaming Inspection and Coordination Bureau (DICJ) said August gross gaming revenue (GGR) on the peninsula slumped to $3.01 billion from $3.28 billion a year earlier, marking the Special Administrative Region’s (SAR) third-worst monthly performance of 2019.
A confluence of factors plagued Macau gaming activity last month, notably a substantial decline in VIP revenue. But Stifel analyst Steven Wieczynski remains bullish on LVS. Heightened trade tensions between the US and China and the controversy surrounding junket operator Suncity were among the reasons why Macau VIP turnover slipped 20 percent to 30 percent last month, according to Wieczynski. However, the analyst is enthusiastic about Sands’ positioning among mass market gamblers.
Given our expectation for continued outsized growth within Macau’s mass market gaming segment, we continue to favor exposure to Macau’s most dominant mass market player, LVS,” said the Stifel analyst in a note provided to Casino.org.
Last month, mass market revenue on the peninsula likely grew at a mid-single-digit rate.
LVS shares are up 6.57 percent year-to-date, but that’s a far cry from the nearly 21 percent returned by the S&P 500 Consumer Discretionary Index. Gaming companies reside in the consumer cyclical sector. The company owns five Macau casinos.
Due to their heavy dependence on the Chinese territory, shares of companies such as Las Vegas Sands and Wynn Resorts (NASDAQ:WYNN) are intimately correlated to economic data out of the world’s second-largest economy.
The US/China trade war is driving near-term volatility in gaming companies with Macau operations. On Monday, the US unleashed 15 percent tariffs on $112 billion worth of Chinese imports, with Beijing returning the favor with a promise to levy $75 billion of American imports. Even with the added turbulence, Wieczynski likes LVS stock.
“Although we expect lingering Chinese macroeconomic uncertainty to elevate trading volatility in the near-term, we see nothing out there at this point capable of tempering our long-term enthusiasm on the name,” said the Stifel analyst.
Importantly for long-term investors, Wieczynski sees little standing in the way of LVS rewarding shareholders via share buybacks and dividend growth. The stock currently yields 5.55 percent, more than triple the yield on 10-year Treasuries.
Big Scale, Strong Balance Sheet
Sands is one of the dominant operators in Asia via its Macau properties and the Marina Bay Sands in Singapore, positioning the company is looking to enhance by landing one of Japan’s prized integrated resort licenses. That regional scale and the company’s strong balance sheet are catalysts for the stock, notes Wieczynski.
“We believe LVS’ unrivaled scale and investments for the future position its Macau business to remain a leader in the world’s premiere gaming market for the foreseeable future,” said the analyst. “Additionally, the company’s impeccable balance sheet not only adds a level of safety and security to the story, but also favorably positions the company to successfully pursue any global integrated resort development opportunities of size that come along in the future, in our view.”