Sands Downgraded as Analyst Sees Good News Priced In

Posted on: January 14, 2025, 05:12h. 

Last updated on: January 15, 2025, 09:53h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Las Vegas Sands (NYSE: LVS) slipped Tuesday after the stock was downgraded on the basis that much of the positive news out of Macau is priced into the shares.

The Marina Bay Sands resorts in Singapore
The Marina Bay Sands resorts in Singapore. Morgan Stanley downgraded shares of operator Las Vegas Sands. (Image: Marina Bay Sands)

The gaming stock fell 3.99% on volume that was about 50% above the daily average after Morgan Stanley analyst Stephen Grambing cut his rating to “equal-weight” from “overweight” while paring his 12-month price target to $51 from $54. That implies upside of 13.3% from Tuesday’s close at $45. Grambing acknowledged Sands’ shares are discounted on the basis of enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA).

After the outperformance YTD, the stock trades at ~11.5x/~10.5x MS 2025e/2026e EV/EBITDA, still below its pre-pandemic average of ~13.5x NTM EV/EBITDA,” he observed.

While the stock lagged the S&P 500 last year, it posted modest upside, prompting some in the investment community to speculate Sands could be in for better things in 2025. That could prove accurate, but the stock has started 2025 in turbulent fashion, shedding 11.64% over the past week on its way to a 12.38% drop since the start of the year.

Sands Fundamentals Decent, but Scrutiny Warranted

Some of the bullishness ascribed to Sands and other Macau casino stocks centers around the point that in 2024, gross gaming revenue (GGR) grew in the Chinese territory, but remain well below the levels seen before the coronavirus pandemic.

That implies room for upside and prompted analysts to forecast that this year would bring GGR increases, with 2026 representing a return or surpassing pre-pandemic highs. Sands is positioned to take advantage of those trends with new room supply at the Londoner and Venetian coming online, but Grambling argues those factors are priced into the shares.

“From a fundamental perspective, 2024 ended lower than forecasts on the back of a slower ramp in the market and greater disruption from renovations (Londoner and Venetian arena). While renovation disruption should ultimately unwind, 2025/2026 consensus estimates appear to already embed that outcome with healthy overall growth, anticipating solid share gains,” adds the analyst.

Upgrades at the Londoner are expected to be finished in the first half of this year, and while that could benefit Sands, the operator’s leverage to mass-market patrons could make the stock somewhat dependent on China unveiling more, wider-ranging monetary stimulus – something that’s not guaranteed to occur.

Cautious on Singapore, Too

Singapore, which is home to Marina Bay Sands, is the only other market in which LVS operates casino hotels, and Grambling sounded a cautious tone on that jurisdiction, too. He pointed out that visitation to the city-state by Chinese tourists – a vital demographic — is slowing at a time when Sands is planning major upgrades to its integrated resort there.

It’s rumored that Sands could borrow up to $9 billion to add a fourth tower and other enhancements to its iconic Singapore property. Marina Bay Sands is one of the most valuable gaming brands in the world and the gaming venue is one of the most profitable of its kind.

Those expenditures could medium-term scrutiny from analysts and investors if Singapore tourism dips.