Las Vegas Sands (NYSE:LVS) stock, like so many of its gaming peers, is enduring a rough 2020 at the hands of the coronavirus pandemic. But Goldman Sachs sees brighter days ahead for the name in 2021.
Earlier this week, the Wall Street bank published a list of its top 10 rebound ideas for next year. And the group is led by none other than the Venetian operator. Goldman’s grouping is rooted in the evaluation of companies’ financial sturdiness. The LVS consistently checks the box as one of the more cash-rich gaming firms. Despite posting quarterly losses this year because of the pandemic, Sands has $2.38 billion in unrestricted cash as of Sept. 30.
With investor attention centered around macro recovery and the recent rotation into value, we look at both of these through a cash ﬂow lens,” said Goldman Sachs analyst Deep Mehta in a note to clients. “We focus on the trajectory of free cash ﬂow, factoring in both ﬁnancial proﬁtability (Margin) and valuation (Yield).”
LVS is the largest domestic casino operator by market capitalization. It is one of the two gaming names on the Goldman list. The other is Accel Entertainment (NYSE:ACEL), a small-cap provider of video game terminals (VGTs) in Illinois.
LVS stock is lower by 15.18 percent year-to-date. This underscores the name’s vulnerabilities to casino closures and travel restrictions hindering its operations in the Asia-Pacific region and Las Vegas.
However, the name is higher by 27.47 percent over the past month amid a spate of encouraging news on the COVID-19 vaccine development front. Additionally, Sands is accruing some momentum. Visitation and gross gaming revenue in Macau, the company’s most important market, is perking up. And Singapore, where it owns Marina Bay Sands, is working on regional travel bubbles to lure tourists back to the city-state.
When it comes to cash flow, Goldman forecasts LVS will have a 2020 free cash flow yield of negative six percent before that metric rebounds to seven percent next year and 10 percent in 2022.
“LVS should see a rapid recovery in earnings before interest, taxes, depreciation and amortization (EBITDA) as it captures share in Macau due to the combination of its investment in new product (Four Seasons & the Londoner) and exposure to the more resilient premium mass segment,” said Goldman analyst Stephen Grambling.
Cash Infusion Coming?
Last month, Sands confirmed it’s in early talks to potentially sell its Sin City assets — Sands Convention Center, Venetian, and Palazzo — for $6 billion. Should that deal come to fruition, it would create a massive influx of cash, likely enough to restore the company’s previously halted dividend and pursue enhancements and expansion in the Asia-Pacific region.
Goldman didn’t comment on the prospective asset sales in relation to the 2021 turnaround call on LVS stock. But Grambling notes the equity is attractively valued.
It “trades at a discount to its historical average despite being one of the few companies in our coverage to move to positive free cash flow,” said the analyst.