Las Vegas Sands: Gambling on Macau?

05/30/2019 5:00 am EST

Focus: REAL ESTATE

John Staszak

Securities Analyst: Consumer Discretionary & Consumer Staples, Argus Research Corporation

Las Vegas Sands (LVS) owns and operates the Venetian Casino Resort and the Sands Expo and Convention Center and the Palazzo Casino Resort in Las Vegas, notes John Staszak, an analyst with Argus Research.

The company also owns and operates The Sands Casino Resort in Bethlehem; the Sands Macau Casino, the Venetian Macao and the Four Seasons Hotel in China; and the Marina Bay Sands in Singapore. It is also pursuing a range of other gaming opportunities in Asia, Europe and the U.S.

On April 17 after the close, Las Vegas Sands reported 1Q19 operating earnings of $0.91 per share, down from $1.04 in the prior-year period and a nickel above consensus. EBITDA in Macau rose approximately 9% year-over-year to $858 million, above the consensus estimate of $796 million.

Impressively, LVS’ share of gross gaming revenue (GGR) in Macau was approximately 25%; its highest level since the second quarter of 2015. The Marina Bay Sands in Singapore contributed $423 million to adjusted EBITDA, down 22% from the prior-year period and $7 million above consensus.

LVS is also focused on its convention business in Las Vegas where RevPAR was up 2% in 1Q19 and management believes bookings remain solid. In addition, we expect investors to benefit from the company’s highly profitable Singapore operations, $2 billion share buyback program, and history of dividend increases.

Management said that it expects a continued recovery in the Macau market to result in market share gains. The company plans to spend $2.2 billion in Macau over the next three years. In Las Vegas, management is seeing solid bookings.

We are maintaining our buy rating on Las Vegas Sands. We are maintaining our 2019 estimate of $3.70. For 2020, we are keeping our estimate at $4.00 per share. Our long-term earnings growth rate estimate is 14%.

LVS is trading at 18.4-times our 2019 EPS estimate, which we believe inadequately reflects prospects for a gradual recovery in Las Vegas and solid results in Macau. With revenue and EBITDA poised to recover, our rating on LVS remains "buy".

Our revised target price of $80 implies a multiple of 21.6-times our 2019 EPS estimate, which we view as reasonable, and a potential total return, including the dividend, of 22% from current levels.

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