Las Vegas Sands Stock Has Remained Flat This Year Despite Macau Recovery. What’s Next?

Las Vegas Sands stock (NYSE:LVS) has been a mixed performer this year, remaining roughly flat year-to-date, compared to the broader S&P 500 which remains up by over 19% over the same period. However, the company’s financial performance is clearly improving, led by its Singapore business and a rebound in activity in Macau. For Q3 2023, the most recently reported quarter, revenue rose to about $2.8 billion from about $1 billion in the year-ago quarter, while adjusted earnings came in at $0.55, compared to a loss in the year-ago quarter. Sands’ Macau business – which accounted for over 60% of the company’s pre-pandemic revenue – is seeing a strong rebound as China relaxed many of its intense Covid-19 restrictions earlier this year. While Macau revenues trended to a fraction of 2019 levels amid a dramatic decline in tourist inflows in 2021 and 2022, LVS appears to be seeing strong pent-up demand currently. Mass gaming revenue for the company’s Macau business rose to $1.45 billion during the quarter or about 91% of Q3 2019 revenue. Las Vegas Sands’ Marina Bay Sands (MBS) property in Singapore remains the company’s biggest profit driver, as tourist inflow into the country also continues to expand. Revenue from the property alone came in at just over $1 billion in Q3. The mass-market gaming segment in the property has seen a surge, with revenue for tables and slots rising to about $569 million, or about 139% of Q3 2019 levels. Occupancy rates for hotel rooms were also robust standing at over 96%, with average daily rates standing at $681.

Despite the ongoing recovery, LVS stock has seen a decline of 15% from levels of $60 in early January 2021 to around $50 now, vs. an increase of about 20% for the S&P 500 over this roughly 3-year period. However, the decrease in LVS stock has been far from consistent. Returns for the stock were -37% in 2021, 28% in 2022, and 2% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 19% in 2023 (YTD) – indicating that LVS underperformed the S&P in 2021 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and HD, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could LVS face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a recovery?

We expect the company’s financial performance to continue to improve going forward as demand in Macau picks up further. Overall visitors to Macau reached about 8.3 million over Q3, compared to just about 5 million in Q1. However, this number is still about 16% below levels seen in 2019. The number could rise further as airline capacity in the region improves. LVS is well-positioned to cater to this demand given that it has over 12,000 rooms in the region. Per-capita spending by visitors into Macau has also picked up, rising by 64.9% for the first nine months of 2023, compared to the same period in 2019. Higher average tourist spending and rising number of visitors should bode well for major casino players such as LVS. Things are likely to remain strong in Singapore as well, given the country’s reputation as a stable and high-value market.  Las Vegas Sands’ liquidity position is also reasonable, with cash holdings standing at $5.6 billion as of September 2023. That being said, there are risks as well.  LVS is also quite highly leveraged, with close to $14.2 billion in total debt outstanding. There are also concerns about the Chinese economy, with the crisis in the real estate sector, and this could pose a risk for LVS. We value LVS stock at about $56 per share, which is about 15% ahead of the market price. See our analysis of Las Vegas Sands valuation for more details on what is driving our price estimate for the stock.

[1] Month-to-date and year-to-date as of 11/27/2023
[2] Cumulative total returns since the end of 2016

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