Sands Stock Attractive on Risk/Reward Basis, Says JPMorgan Analyst

Posted on: July 6, 2022, 01:24h. 

Last updated on: July 6, 2022, 03:55h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Despite considerable challenges in Macau, which is the company’s marquee market, Las Vegas Sands (NYSE:LVS) offers investors a favorable risk/reward setup. That’s particularly true if momentum builds at Marina Bay Sands in Singapore.

Las Vegas Sands
Marina Bay Sands in Singapore, seen above. JPMorgan is bullish on the venue as a catalyst for LVS stock. (Image: Reuters)

That’s the sentiment of JPMorgan analyst Joseph Greff, who in a new note to clients rates LVS stock “overweight,” with a $42 price target. While that price forecast is down from $46, it implies upside of 20% from the July 6 close. Predictably, the looming issue is Macau and how quickly recovery materializes in a market in which Sands runs five integrated resorts.

We don’t think there is a strong view for any gross gaming revenue (GGR) come-back for Macau until next year (at the earliest) since it’s been near impossible to predict easing of mainland China’s zero COVID-19 tolerance policy,” says Greff.

He adds that market participants’ expectations regarding Macau are “washed out,” and that soft revenue figures in the world’s largest casino hub are likely through the end of 2022.

Sands Geographic Outlook

With the second-quarter earnings season slated to start this month, it’s likely LVS will offer up some dismal Macau results.

Analysts on JPMorgan’s Asia team recently said it’s likely that all six Macau concessionaires, including Sands China, are unlikely to report positive earnings before interest, taxes, depreciation, and amortization (EBITDA) for the June quarter. In terms of GGR, June was the worst month of 2022 for Macau operators, and amid a spate of new COVID-19 cases, casinos there open on a mostly token basis, keeping visitors at bay.

On the other hand, Las Vegas Sands has some geographic benefits, including a lack of exposure to the US. Analysts say cracks are appearing in the domestic casino industry as high inflation and declining consumer confidence are pressuring gaming spending in some markets.

“As well, we like the fact that LVS doesn’t fall into the bucket of stocks where its business is experiencing decelerating revenue/EBITDA trends like many U.S. gaming/lodging operators,” Greff added.

For Sands, Singapore Matters

With no US venues and muted expectations for Macau, Marina Bay Sands in Singapore needs to carry the day for LVS.

The Singapore integrated resort accounts for half of the operator’s current market capitalization and is forecast to sport a one-year forward annual property level EBITDA rate of $1.2 billion, according to JPMorgan.

Greff says there’s positivity in terms of revenue and visitation at 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 vaccine policy, and a resurgence in premium mass players are among the factors boding well for the property.