There are no sure things in investing, and that’s certainly true these days with gaming equities. But Las Vegas Sands (NYSE:LVS) appears to be one of the group’s safer names, according to one Wall Street analyst that covers the company.
Earlier today, Macau’s Gaming Inspection and Coordination Bureau (DICJ) said March gross gaming revenue (GGR) slid 79.7 percent. That’s as the coronavirus pandemic continues to grip LVS’s most important market. In any given quarter, the only Chinese territory where gambling is permitted accounts for approximately 60 percent of Sands’ earnings before interest, taxes, depreciation and amortization (EBITDA),
While COVID-19 challenges remain obvious for Macau operators, with some bleeding up to $4 million a day to keep their venues running, Stifel analyst Steven Wieczynski remains bullish on LVS’s long-term prospects in Asia and sees value in the Venetian operator’s shares.
With LVS shares under severe pressure, we would be using this weakness to accumulate shares knowing this company was built to not only withstand temporary fluctuations to their operating model, but also thrive on the other end,” said the analyst.
Like rival operators, LVS is being pinched this year by temporary closures of its integrated resorts. First, the company dealt with a 15-day shuttering in Macau, where it owns five properties. Currently, Nevada, where Sands owns the Venetian and Palazzo on the Las Vegas Strip, is in the midst of a 30-day shutdown because of the COVID-19 pandemic,
Marina Bay Sands in Singapore is the only one of the operator’s eight venues that hasn’t been shuttered at some point this year. But that integrated resort closed a popular nightclub and is implementing social distancing protocols.
Industry Best Positioning
As the coronavirus punishes the gaming industry, concerns are mounting about operators’ financial health – a scenario that is separating the group’s strong from the weak. Wieczynski sees LVS in the former group.
“When we started to do work around LVS, we quickly realized this company was by far the best- positioned company under our coverage to not only survive the current operating environment, but thrive on the other end as fundamentals improve,” said the analyst. “We continue to be big believers in the long-term health of the Macau and Singapore gaming markets.”
The Parisian Macau operator is coming off a first quarter in which its shares shed nearly 39 percent. But its balance sheet is among the industry’s strongest, and the company recently convinced Chinese lenders to grant default waivers on some debt covenants, giving it additional financial flexibility.
With $4.23 billion in cash on hand, LVS has some of the best liquidity in the industry, potentially allaying investors’ concerns about the company’s survival timeline.
“Based on our math, we believe LVS could stay liquid for 1.3 years if they maintained their dividend and 2.1 years if they cut their dividend,” said Wieczynski. “This gives us great comfort knowing this company was not only built to withstand temporary fluctuations to their operating model but thrive on the other end as fundamentals improve.”
The analyst said Sands is in position to maintain its payout, which was boosted earlier this year and has never been cut. LVS stock yields 7.44%.