Las Vegas Sands Upgraded on Diminishing Macro Risk

Las Vegas Sands (NYSE: LVS) drew a sell-side upgrade, as an analyst sees diminishing domestic macroeconomic risk hampering the scuffling stock.

In a note to clients today, Bank of America analyst Shaun Kelley upgraded shares of the Venetian Macau operator to “neutral” from “underperform.” That call arrives 10 months after the analyst downgraded the stock.

Acknowledging that there’s still ample uncertainty in Macau — Sands’ largest operating market — tied to concession renewal and reopening risk, Kelley says those risks are lower today than when he lowered his rating on Sands 10 months ago.

LVS is a low beta, low leverage stock that is less correlated with US macro and rates, with substantial positive estimate revision potential should a reopening occur,” he wrote.

Currently, the Las Vegas Sands portfolio consists of six casino-resorts — five in Macau and Marina Bay Sands in Singapore. That means the company has essentially no direct exposure to domestic macroeconomic concerns, such as persistently high inflation and rising interest rates.

Macau Risk Still Palpable for Sands, Rivals

While the Bank of America upgrade is a positive, it didn’t prevent a 2.05% loss by Las Vegas Sands today, which extends the stock’s one-week slide to 14.36%.

Conversely, there is some feeling among analysts and industry experts that Beijing realizes it can’t keep the special administrative region (SAR) locked down forever simply to ward off COVID-19. In the meantime, some investors might be drawn to LVS as a value idea.

“BofA see valuation as mixed on LVS with the stock trading at about 10X fully recovered EBITDA well below long-term averages of about 13X,” according to Kelley.

LVS Long-Term View

Although it operates five venues in the SAR, LVS also runs Marina Bay Sands in Singapore. That integrated resort is a source of strength for Sands, and represents roughly half the company’s market capitalization by some estimates.

Regarding Macau, there is some concession renewal risk owing to the surprise entry of Genting Malaysia into the competition and ongoing US/China geopolitical tensions. However, consensus is local officials are likely to renew licenses for the six established operators, including Sands China.

Once renewal risk ebbs, a significant overhang for LVS stock will be removed. But investors may still need to exercise patience. Analysts widely expect recovery in the world’s largest gaming center to start next year. They anticipate the special administrative region’s (SAR) gaming industry not beginning to look like its pre-pandemic self until 2024.