Shares of Las Vegas Sands Corp. (NYSE:LVS) jumped 32.64 percent last year. While there could be some headwinds in Macau in the first half of 2020, analysts are mostly bullish on the Venetian operator’s stock, particularly for long-term investors.
In a note procured by Casino.org, Stifel analyst Steven Wieczynski calls LVS his top pick among large-cap gaming operators for 2020. That’s even while acknowledging that competition is intensifying for mass market players in Macau. Sands could face some “disruption” this year on the peninsula as it brings new room supply to market, including the addition of 290 rooms at the Four Seasons Towers.
With that said, we continue to view LVS as a ‘must-own’ name for the long term, supported by the company’s structural scale-advantaged position in Macau’s mass gaming market,” said the Stifel analyst.
Macau, where LVS owns five integrated resorts, is the company’s marquee market, accounting for the bulk of the operator’s revenue and earnings before interest, taxes, depreciation and amortization (EBITDA) in any given quarter. Following a rough 2019 for the Special Administrative Region (SAR), analysts expect gross gaming revenue (GGR) there to pick up in the second half of this year.
One of the most significant issues operators on the peninsula contended with last year was a slowdown in VIP revenue. In fact, lower tier players accounted for more than half Macau’s GGR over the course of 2019. Although LVS has light premium player exposure relative to some of its rivals, the company stands to benefit if revenue from that segment improves this year.
“Although LVS is relatively underexposed to the VIP market (<10% of Macau TTM EBITDA at 9/30/19) as compared to several of its Macau operator peers, we believe a resurgence in the VIP market would be indirectly beneficial to the company’s Macau fortunes, as several VIP-focused competitors could begin to shift their focus away from the mass market,” said Wieczynski.
While competition is heating up for premium mass market players, Wieczynski believes LVS has enviable positioning in terms of capturing those gamblers. The position includes the company’s control of large percentages of four and five-star room stock on the Cotai Strip and the overall Macau market and “unrivaled scale” for non-gaming amenities.
Catalyst In Place
On the surface, it may appear as though LVS shares lack near-term catalysts, at least until data confirms an uptick in Macau GGR. But Wieczynski sees the dividend as a reason to get involved with the stock. Sands yields 4.35 percent, more than double the yield on the S&P 500 or 10-year Treasuries.
“We would argue the current 4% dividend yield adequately compensates investors to wait for a more prolific growth opportunity to emerge,” said the analyst. “Furthermore, as reflected by the upward trajectory of the company’s annual dividend payment over the last several years, and recent opportunistic share repurchase activity, we believe management remains committed to augmenting shareholder returns through a generous and diversified capital allocation strategy that we view as unrivaled amongst LVS’ peer group.”
The analyst has a “buy” rating on LVS and a price target of $80, up from his prior forecast of $74. That new estimate implies upside of 12.6 percent from where the shares trade at this writing.