Shares of Las Vegas Sands (NYSE: LVS) are already up 26.77% year-to-date, underscoring surprising veracity with the Macau rebound. Some analysts believe the stock is primed for more upside.
In a new report to clients, Morgan Stanley analyst Stephen Grambling called Sands the firm’s top casino stock pick — a proclamation that arrives ahead of the company’s second-quarter earnings report due out on Wednesday, July 19. Macau, where Sands’ Sands China runs five casino resorts, is a significant factor in Wall Street’s upbeat view of the stock.
LVS historically has catered primarily to the mass market leader with ~25% market share pre-COVID and expect that share to improve over time as it invested $2B across two Macau properties during the pandemic. LVS’s other major property in Singapore continues to generate positive trends while also boasting a pristine balance sheet (<1x 2024 Net Debt/EBITDA) and ~$6.5B of cash at the end of 1Q23,” observed Grambling.
The analyst rates Sands “overweight” with a $71 price target. That implies upside of 16.3% from the July 14 close and slightly above the consensus price forecast of $69.78.
‘Best Way to Play Macau’
Sands is one of six Macau concessionaires and, broadly speaking, that group is delivering for investors this year as the special administrative region’s (SAR) gaming industry rebounds from three years of punitive coronavirus restrictions enforced by the Chinese Communist Party (CCP).
Performances across that group of casino stocks aren’t linear, but with Sands’ ability to command and grow market share among mass and premium mass players at a time when the VIP recovery remains tepid, the name has the potential to be a leader among Macau equities.
“We see it being the best way to play Macau and one of the final consumer recovery stories coming out of COVID-19,” observed Grambling.
As for back half catalysts that could propel Sands, the possibility that Macau’s gross gaming revenue (GGR) could at some point this year return to 2019 levels could be a legitimate spark. That metric approached 65% of pre-COVID levels last month.
Sands Solid Casino Stock Idea Beyond 2023
Grambling also noted that ongoing strength at Marina Bay Sands in Singapore — Sands’ lone venue outside of Macau — adds to the stock’s second half 2023. With the calendar already in July, it’s likely to be just a short spell before analysts and investors turn to assessing 2024 catalysts for Sands.
As Grambling points out, those could include the resumption of the company’s dividend, which has been suspended since 2020, the announcement of a share repurchase program and potentially winning one of three New York City-area casino permits that will be awarded.
Sands was previously the gaming industry’s dominant dividend payer and executives have extoled a preference for resuming the payout to share repurchases, but that view could change. Plus, the operator is likely to need permission from some of its creditors to restart the dividend.
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