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Las Vegas Sands: Not Convinced Yet

Las Vegas Sands (LVS) is a developer of destination properties that offer premium accommodations, world-class gaming, entertainment, shopping experiences, celebrity chef restaurants, and various other amenities.

The company owns and operates integrated resorts in Asia and the United States, featuring a diversified platform in the hospitality and gaming industry, which has historically generated robust cash flows. Management holds a solid track record of pursuing new development opportunities too.

While the company used to produce quite predictable and stable revenues and net income, COVID-19 adversely impacted the resorts and casinos industry.

Many industries initially impacted have slowly but gradually recovered. Yet, hospitality and physical gambling seem to remain rather depressed. In my view, while LVS shares currently trade near multi-year lows, the stock remains quite speculative in terms of its short-term net income estimates.

For this reason, I am neutral on the stock. (See Insiders’ Hot Stocks on TipRanks)

Struggling Financials

Las Vegas Sands features a prolonged track record of excellent financials. Even during the Great Financials Crisis, when consumers’ disposable income had been significantly compressed, the company had managed to produce robust revenues, and control its losses, despite operating such a cyclical business model.

However, hardly anything could be done to prevent COVID-19’s misfortunes, with casinos and resorts effectively shutting down. The company’s LTM (last 12 months) revenues currently stand at $4.5 billion (down from their pre-pandemic levels of around $14 billion), while the company has lost $1.3 billion during this period.

Quarterly revenues have now slightly improved from Q2 2020 when they bottomed out, but they are far behind their normal levels, and seem to have stagnated.

With consumers still hesitant to spend time in crowded indoor spaces, the company’s cash flows are likely to remain pressured for an unknown period of time. Especially considering that online gambling has soared over the past couple of years.

The company earlier this year announced it had agreed to sell its Las Vegas properties for around $6.3 billion, in order to focus on its Asia operations.

This is likely due to Asia being far more profitable than its U.S. properties. For context, in FY 2019 (a fiscal year under normal circumstances), around 70% of operating profits were generated from LVS’s five Macau properties, 20% from its Singapore resort, and only 10% from its Las Vegas properties.

Analysts expect the company to generate EPS of around $1.57 in FY 2022. In other words, the stock is currently at 25.5 times its potential FY 2022 net income.

This is a steep multiple to pay for a company whose future financials and overall expansion prospects remain uncertain.

Wall Street’s Take

Turning to Wall Street, Las Vegas Sands has a Moderate Buy consensus rating, based on three Buys, five Holds, and zero Sells assigned in the past three months. At $53, the average Las Vegas Sands price target implies 32.2% upside potential.

Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article.

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