Las Vegas Sands: Early Upside Move May Signal More Ahead Than Many Believe (NYSE:LVS)

Above: Macau growth is speeding ahead of many early recovery calls.

We accept what may be some investors’ characterization of our bullish outlook on Las Vegas Sands Corp. (NYSE:LVS) this past year as that of a faded broken record. Give the apparent resistance to the stock moving anywhere near my price target (“PT”) of $70, it is understandable. The stock has had a real struggle to even reach above $50. In light of the strong performance of the company in post covid Asian markets we now see, the collective shrug of Mr. Market continues to baffle many fans of the stock, including me. Most recent FY23 results could be a very green shoot,

I’ve deep dived through the stock repeatedly over the past years. I’ve added my gaming career-based insight that ordinarily goes beyond most of standard analysis of the stock. I’ve thought about my not recognizing the persistent investor nostrum, “falling in love with a stock usually ends up with an investor being jilted.” I get it, but continuing my positive outlook still wins. I’m putting my best instincts and knowledge from 35 years in the casino business against Mr. Market here.

In prior Seeking Alpha posts, we have attempted to assemble a group of factors, any one of which has contributed to the ongoing skepticism. We, along with many holders, have pondered whether the capital structure with 50% of the equity in the hands of Sheldon Adelson’s widow and foundation turns investors off. Or whether the recovery to date of Macau and Singapore gaming markets have yet to reach levels to comfort non-believers. And lingering way out in left field is the conceived vulnerability that mainland China’s growing anti-U.S. saber rattling combined with its sagging economy pose the greatest of all threats to the entire industry.

Above: There is a core segment of investors who remain wary of companies like LVS with their entire business dependent on the good will of a dictator. We understand that but our own long experience in Asia gaming suggests otherwise, The Chinese never leave a dime on the table. Renewal of the Macau gaming licenses tells a more bullish story.

Bullish signs continued for LVS in 2023, and Asia gaming outlook for 2024 speeds toward full pre-covid recovery range

LVS 2023 FY top line performance:

• Revenue: $10.4b up 152% y/y (2022 was still partially impacted by the tail of covid disruptions, among which was air travel schedules still falling short of pre-covid arrivals).
• Net income: $1.22b up from loss ($1.07b) from 2022.
• Profit margin: 12% up from net loss in 2022.
• EPS: $1.62 up vs. loss ($1.40) for 2022
• P/E vs. peers- LVS Price at writing: $54.50
• LVS: 31.98
• Wynn: 168.5
• MGM: 40. (ttm)
• CZR: 46.30
• MLCO: 27.86
• Market share rise: Among the LVS performance levels noted for FY 23 is the revised estimates of Macau market share from both bank and official sources. LVS brought in the single largest gain in market share for the year.

LVS grew share from 23.4% in 22 to 26.1% in 23. That was a 3.2% rise overall and tracking higher for 24.

Our September 20, 2023, buy call—the stock that day was: $48.38 still apparently unable to stay above $50 very long.

On January 28^th this year, our call on Seeking Alpha had the stock at $50. Dominant analyst PTs as of today is $63 calling HOLD.

After reviewing both LVS numbers and forward market prospects for Singapore and Macau, we continue BUY with an unchanged PT of $70 by the end of 2Q24.

The immense turnaround for LVS y/y is, of course, directly related to a surging recovery both in Macau and Singapore.

Fitch has now projected that the Macau market will reach 80% of baseline 2019 GGR ignited by 15% growth y/y from 203. That translates to US$26.6b in gaming win for the six concessionaires. If LVS holds market share, it gets US$6.75b in gaming revenue. 1Q24 alone for Macau is estimated to reach $7.15b up 65$ y/y. These numbers show what we have long believed to be an abiding reality of the Asian gaming customer:

Unless macro events are catastrophic, as was covid, no decline in China GDP would materially stop regardless of cyclical economic woes.

Arrival numbers add to the bull scenario

Macau officials are forecasting 2024 total arrivals to Macau of 33m, a 17% y/y increase reaching over 80% of baseline 2029.

Singapore tourist agencies are forecasting arrivals at 16m, 18% of which will come from mainland China origin points. Until last year, the #1 origin point for Singapore tourism was Indonesia.

In Macau, LVS benefits from its 12,000 room capacity and its spread across every consumer segment from average to high-end rates, dining and entertainment facilities. Likewise, Marina Bay Sands sits on a duopoly with Genting.

(Note: There have been lingering questions from investors about the status of a planned fourth tower for the MBS property. We have checked with our best sources in Singapore. They tell us that the country’s Urban Redevelopment Authority this month had approved the MBS expansion, with a start date next month (April). The $3.3b project will have 587 rooms, down from an originally planned 1,000 rooms.)

Investors had been questioning whether the downscaling of the project reflected some apprehension at LVS on the long – term prospects of the Singapore market. Our sources believe the scale down reflects post covid “simple prudent investing appraisals they could have a two phase process in mind.”

Goldman Sachs Picks 25 opportunity stocks: LVS is one

In a recent report, GS picked 25 stocks it analyzed as having the highest dispersion score, i.e., stocks that showed high dispersion from the benchmark favorites. In ratings that ranged from above eight to ~6. LVS scored a place at #19. For context, with United Airlines Holdings (UAL) at 6.8 and Advanced Micro Devices (AMD) 6.1, LVS ranked 6.8. Overall guidance on the list was HOLD. We cite this report primarily because it suggests a possible mispricing of the stock on the bullish side from a source steeped in algorithms of a high percentage proving out over time.

We note that the diversion test is not necessarily dispositive, as are so many formulaic data sets we see every day. Nor is it idle meandering with algorithm quants with nothing better to do in back offices, where thumb twiddling does tend to wind up now and then. However, in our view, the FY results and forward bullish tone of both the Macau and Singapore markets, plus LVS’s command of market share, tells us the stock at $53 is more than a hold.

Conclusion

We think there still is much more to like about LVS than there is to be wary of. At its current trade, it seems fairly priced. Yet, to us, that does not reflect ongoing catalysts in full but continues to move cautiously north. The margin of safety clearly fits in a worst-case scenario (not including black swans of course).

Two sources put the intrinsic value of LVS at $54.75 exactly where it is currently trades. I think those evaluations with a five-year terminus still reflect some overly conservative FCF projections of covid impacted quarters.

So, off we go again with our $70 PT. Commenters who disagree are welcome to dispute my bull scenario. I can be persuaded by trenchant argument, but please bear in mind I’ve put over 35 years in the casino business—and that I admit does produce a bias over a long period.