Posted: July 6, 2022, 1:24 a.m.
Last update: July 6, 2022, 1:34 a.m.
Despite considerable challenges in Macau, which is the company’s flagship market, Las Vegas Sands Inc (NYSE:LVS) offers investors a favorable risk/reward setup. This is especially true if momentum is growing at Marina Bay Sands in Singapore.
That’s the sentiment of JPMorgan analyst Joseph Greff, who in a new note to clients rates LVS stock as “overweight,” with a price target of $42. Although this price prediction is down from $46, it implies a 20% upside from the July 6 close. Predictably, the looming issue is Macau and how quickly the recovery is materializing in a market in which Sands runs five integrated resorts.
We don’t think there is a strong view of a return of Gross Gaming Revenue (GGR) for Macau until next year (at the earliest) as it is nearly impossible to predict the easing of the Mainland China’s COVID-19 Zero Tolerance Policy,” Greff said.
He adds that market players’ expectations for Macau are “washed out” and that weak revenue figures in the world’s biggest casino hub are likely through the end of 2022.
Geographical perspectives of the sands
With the second quarter earnings season set to begin this month, LVS is likely to deliver dismal results in Macau.
JPMorgan’s Asia team analysts recently said the six Macau dealerships, including Sands China, are unlikely to post positive earnings before interest, tax, depreciation and amortization (EBITDA) for the June quarter. . In GGR terms, June was the worst month of 2022 for operators in Macau, and amid a string of new COVID-19 cases, casinos there opened on a mostly token basis, keeping visitors at bay. .
On the other hand, Las Vegas Sands has some geographical advantages, including a lack of exposure to the United States. Analysts say cracks are emerging in the domestic casino industry as high inflation and declining consumer confidence put pressure on gambling spending in some markets.
“Additionally, we appreciate that LVS is not falling into the stock bucket where its business is experiencing decelerating revenue/EBITDA trends like many US gaming/hosting operators,” adds Greff.
For Sands, Singapore counts
With no US venues and moderate expectations for Macau, Marina Bay Sands in Singapore must win the day for LVS.
The Singapore integrated resort represents half of the operator’s current market capitalization and is expected to post a year-over-year forecast annual EBITDA rate of $1.2 billion, according to JPMorgan.
Greff says there is positivity in terms of revenue and visitation to Marina Bay Sands, and that could be reflected in the operator’s second quarter results. The analyst adds that the combination of easing travel restrictions, Singapore’s COVID-19 vaccination policy and a resurgence of high-end mass players are among the factors that bode well for the property.