Proprietary Data Insights
Financial Pros Top Casino Stock Searches in the Last Month
Can Our +54% Pick Keep Running?
In mid-September 2021, we issued a 10/10 rating for a wholly unloved stock: Las Vegas Sands (LVS).
We felt it and Wynn Resorts (WYNN) were priced for bankruptcy with neither in serious danger.
They’re resorts companies heavily leveraged to Macau, so China’s draconian COVID policies weighed heavily on shares of both companies.
WYNN is up 38% since our call. And LVS is up 54%.
Considering both outperformed the S&P 500 and momentum stocks like Tesla (TSLA) by a wide margin, we’re happy with our recommendations.
The question now is whether top performer LVS is still a good bet or it’s time to cash out.
After all, China’s lifted most of its restrictions, and business is booming at the resorts.
Currently, LVS trades at a lofty 41.5x forward earnings and 18.7x forward cash. And its Q4 results weren’t great.
Yet according to our proprietary Trackstar database, the stock has garnered consistently high search volume since its latest earnings report.
And as we read through the company’s materials, we found a lot of upside potential, which we’ll lay out below.
Las Vegas Sands’ Business
Despite its name, the company actually divested its U.S. properties and now operates casinos only in Macau and Singapore.
The company’s properties are in the following table:
Note that Marina Bay Sands is the company’s Singapore resort. Source: LVS Q4 presentation
Currently, the company isn’t turning a profit.
But there’s a good reason for that: Traffic is still just a fraction of pre-pandemic levels.
Source: LVS Q4 presentation
Singapore’s visitor traffic is now 65% of its 2019 volume. Yet Marina Bay Sands turns a healthy profit.
Macau’s traffic is now just 14% of its 2019 levels.
You can see what we mean when we say there’s plenty of growth left.
Consider that LVS’ 2019 adjusted property EBITDA was $4.85 billion.
That same performance now would equate to $6.17 per share, giving the stock a price-to-EBITDA ratio of less than 10x.
And that ignores the 660 luxury suites LVS has added over the last few years, including the Londoner resort and Grand Suites at Four Seasons.
Plus, the company forecasted $4.5 billion in total capital and operation investment through 2032 in Macau, with another $2.3 billion expansion in Singapore.
Source: Stock Analysis
COVID slammed the brakes on gaming worldwide.
But LVS has done well getting gross margins back in line as it works to improve operating margins.
It cut its dividend, as cash became key to survival.
Interestingly, the company didn’t add much long-term debt during the pandemic. It holds $13.9 billion in long-term debt compared to $12.4 billion in 2019.
But $2 billion of that long-term debt is due this year. It’ll likely roll over into higher-interest-rate debt.
Interest expenses currently cost the company $702 million annually. LVS lost $795 million in cash last year.
But with current and quick ratios of 1.7x each, the company has plenty of liquidity to fund its operations and expansion plans.
Source: Seeking Alpha
Unsurprisingly, no casino and resort operators looked good last year.
Looking forward, LVS’ 41.5x P/E ratio is in the middle of its peers. WYNN and MGM Resorts (MGM) are on the high end at 312.3x and 107.0x forward P/E respectively, with PENN Entertainment (PENN) and Boyd Gaming (BYD) at 19.9x and 10.9x respectively.
LVS has the highest price-to-sales ratio at 10.7x. WYNN is in a distant second at 3.3x.
We mentioned LVS trades at 18.7x forward cash. That’s notably higher than WYNN at 10.2x, MGM at 9.9x, BYD at 8.4x, and PENN at 5.7x.
So it’s fair to say LVS is expensive. But we’d argue that any forecast on EBITDA or cash for 2023 is particularly subject to change given the wide gap in total visitors between 2019 and 2022.
Source: Seeking Alpha
LVS had one of the best gross margins, 62.9%, second only to BYD’s 72.2%. LVS’ closest competitor, WYNN, managed only a 36.7% gross margin.
And LVS’ 44.8% net income margin blew away everyone else’s, as did its levered free-cash-flow margin of 51.4%.
Source: Seeking Alpha
LVS’ forward growth outlook of 38.9% is huge, beating WYNN’s 20.9% and destroying MGM’s 16.2%, PENN’s 4.0%, and BYD’s 2.2%.
LVS’ forward EBITDA growth of 81.1% is huge too.
Our Opinion 7/10
We still love this play and see a lot of upside potential.
Our only issue is the current valuation and price run-up. They don’t account for the uncertainty around China’s regulatory environment nor the volatility in visitors.
If shares drop down towards $45 (they’re well above $58 at writing), we think this becomes a steal.
For those already in the stock, ride the current wave as far as you can and see if $70 per share is in the cards this year.
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