Las Vegas Sands Could Deliver Q4 Earnings Surprise

Posted on: January 19, 2023, 01:18h. 

Last updated on: January 19, 2023, 03:32h.

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

Fourth-quarter earnings season is ramping up and Las Vegas Sands (NYSE: LVS), the largest casino operator by market capitalization, steps into the earnings confessional on Wednesday, January 25.

Sands
Visitors outside the Parisian Macau. Operator Las Vegas Sands could deliver a Q4 earnings surprise. (Image: Anthony Kwan/Bloomberg)

Some analysts believe the Venetian Macau operator could deliver a positive surprise on its results for the October through December period. That’s noteworthy at a time when market observers are forecasting mostly subdued fourth-quarter results from S&P 500 member firms. UBS strategist Keith Parke expects 14 of 20 industries will post year-over-year earnings declines.

However, he identified 32 stocks that could surprise on the upside when reporting results for the December quarter, and Sands is one of those names.

Just how bullish the casino operator’s fourth-quarter update will be remains to be seen. But it’s clear Marina Bay Sands will have to carry the day in terms of earnings growth, because analysts widely expect all six Macau concessionaires to post losses for the final three months of 2022. Sands China is likely sporting the largest loss of the group. However, those losses will likely be lower than what was seen in prior quarters.

Speaking of Macau …

Macau is central to the Sands investment thesis, because the company is the largest operator there, controlling five integrated resorts. On a percentage basis, Sands has one of the largest China-dependent revenue streams among all US-based firms, outside of the technology sector.

Fortunately, overhangs such as gaming license renewal and coronavirus travel restrictions are easing, prompting analysts to take note. On Wednesday, UBS’ Robin Farley upgraded shares of Sands to “buy” from “neutral,” citing the removal of license renewal risk.

We believe the new gaming law significantly lowers risk for LVS: Six concessions are preserved, and the 10-year term would make it less attractive for any new entrants to invest in building a new resort,” Farley wrote in a note to clients. “The phasing out of satellite casinos will also reduce competition – we estimate that satellite casinos make up between 15-20% of total tables in Macau. And importantly, the law draft does not contain dividend payout restrictions.”

Importantly, Macau’s gross gaming revenue (GGR) is off to a strong start in 2023, and some analysts believe it’s likely the six concessionaires could post first-quarter profits.

Sands First-Quarter Outlook Matters

Las Vegas Sands was last year’s best-performing large-cap gaming stock by a wide margin, and that momentum carried into 2023, with the shares up 13.13% year to date. That’s to say that while a fourth-quarter earnings surprise would be nice, analysts and investors will be more intently focusing on any first-quarter guidance offered by the company.

Any commentary offered up by Sands management on next week’s earnings call regarding January Macau trends and outlook for the remainder of the current quarter could prove pivotal in terms of fanning the flames of the stock’s rally.

The company issuing a positive outlook for 2023 is vital, because — owing to the stock’s recent strength — some analysts view Sands as now stretched on valuation, dampening near-term risk/reward prospects.