Las Vegas Sands Shares Stand to Benefit From Leading Asia Positions, Including Macau and Singapore
Posted on: July 30, 2019, 12:14h.
Last updated on: July 30, 2019, 01:39h.
Last week, Las Vegas Sands Corp. (NYSE:LVS) posted second-quarter results that trailed Wall Street estimates and the stock has tumbled 5.50 percent over the past five trading days, but some analysts believe the company’s long-term growth trajectory remains compelling.
Asia, a region where Sands has dominant market positions in Macau and Singapore, is seen as the primary growth driver for the gaming company going forward. Last year, Macau — where LVS owns five casinos — and Singapore combined for 90 percent of the company’s earnings before interest, depreciation and amortization (EBITDA).
We view Las Vegas Sands as well positioned for long-term growth in the gaming industry because of the attractive long-term growth opportunity of Macau and Sands’ dominant mass and nongaming position on the attractive Cotai Strip,” said Morningstar analyst Dan Wasiolek in a recent note.
During the second quarter, LVS said its China business generated EBITDA of $765 million on revenue of $2.14 billion, disappointing analysts that forecast EBITDA of $788 million on revenue of $2.15 billion.
Macau and Singapore, where LVS owns the Marina Bay Sands, are the known quantities for the company in Asia, but Sands is pushing for one of Japan’s integrated resort licenses, something Morningstar believes the company will be successful on.
“Sands’ position in the profitable Singapore gaming market, where a duopoly remains in place through 2030, solidifies our view of the firm’s long-term growth, as does our expectation of the company being awarded a gaming license in a Japanese urban market around the end of 2020,” said Wasiolek.
In Macau, where LVS owns the Parisian, Plaza, Parisian, Sands Cotai Central and Sands Macau, the company is planning $2.2 billion in new investments, including hundreds of new high-end guestrooms. Those investments are aimed at bolstering non-gaming revenue, something LVS has proven adept at in the Chinese gambling center.
Mass market and non-gaming revenue combine for 92 percent of LVS profit on the peninsula, which is seen as favorable for the company’s license renewal efforts (coming in 2022) because policymakers there are looking for ways to stimulate the economy that do not involve casino gaming.
“Sands founder and CEO Sheldon Adelson was the pioneer in developing the Cotai Strip in Macau in the 2000s and did so with a higher focus on the mass and nongaming segments,” said Wasiolek. “We think the government will value this investment and mix by renewing Sands’ Macau gaming license, set to expire in 2022.”
Impressive Data Points
Morningstar forecasts that Japan will award just two gaming licenses next year, that one will go to Las Vegas Sands and that the company will have an integrated resort open in the Land of the Rising Sun in 2025.
That property would eventually contribute a “high teens” percentage of LVS EBITDA and provide 20 percent return on invested capital (ROIC), according to the research firm.
Rising ROIC is one element of the long-term story for LVS shares. The company posted ROIC of 25 percent last year, but Morningstar forecasts that number soaring to 44 percent in 2028 as operating margins jump to 35 percent in 2028 from 27 percent in 2018.
Joining other analysts that have defended the stock in recent days, Wasiolek lifted his fair value estimate on LVS to $77 from $76, implying significant upside from current levels around $61.60.
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