Morgan Stanley Identifies Sands as the Best Casino Stock Option

Posted on: July 16, 2023, 01:00h. 

Last updated on: July 15, 2023, 10:35h.

Shares of Las Vegas Sands (NYSE: LVS) have already surged 26.77% year-to-date, indicating a strong recovery in Macau. Some analysts anticipate further gains for the stock.

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The Parisian Macau. Operator Las Vegas Sands is Morgan Stanley’s top casino stock pick. (Image: YouTube)

In a recent report, Morgan Stanley analyst Stephen Grambling named Sands as the firm’s favorite casino stock pick, just ahead of the company’s upcoming second-quarter earnings report on July 19. The positive sentiment for the stock is driven by the rebound in Macau, where Sands China operates five casino resorts.

LVS historically has catered primarily to the mass market leader with ~25% market share pre-COVID and expect that share to improve over time as it invested $2B across two Macau properties during the pandemic. LVS’s other major property in Singapore continues to generate positive trends while also boasting a pristine balance sheet (<1x 2024 Net Debt/EBITDA) and ~$6.5B of cash at the end of 1Q23,” observed Grambling.

The analyst rates Sands as “overweight” with a $71 price target. This implies a 16.3% upside from the July 14 closing price and is slightly above the consensus price forecast of $69.78.

‘Best Way to Play Macau’

Sands is one of six Macau concessionaires, and this group has performed well in 2023 as the SAR’s gaming industry recovers from the impact of COVID-19 restrictions enforced by the Chinese Communist Party (CCP).

While the performances of different casino stocks within this group vary, Sands has been successful in capturing and increasing market share among mass and premium mass players, even as the VIP segment struggles. This positions Sands as a potential leader among Macau equities.

“We see it being the best way to play Macau and one of the final consumer recovery stories coming out of COVID-19,” observed Grambling.

Looking ahead, one potential catalyst for Sands is the possibility of Macau’s gross gaming revenue (GGR) returning to 2019 levels at some point this year. GGR reached around 65% of pre-COVID levels last month.

Sands Solid Casino Stock Idea Beyond 2023

Grambling also highlighted the continued strength of Sands’ Marina Bay Sands property in Singapore, which adds to the stock’s potential in the second half of 2023. With the year already in July, analysts and investors are likely to start assessing Sands’ catalysts for 2024.

These catalysts could include the resumption of the company’s dividend, which has been suspended since 2020, the announcement of a share repurchase program, and the possibility of winning one of three casino permits in the New York City area.

Sands was previously a major dividend payer in the gaming industry, and executives have expressed a preference for resuming the dividend over share repurchases. However, this view could change, and the operator may need permission from some creditors to restart dividend payments.

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