Down 13% In Last Six Months, Will Macau Recovery Over Q4 Drive Las Vegas Sands Stock?

Las Vegas Sands (NYSE:LVS) is expected to publish its Q4 2023 results on Wednesday, January 24. We expect the company’s revenues for the quarter to come in at about $2.9 billion, marking an increase of 2.6x versus last year and roughly in line with consensus estimates, driven by a rebound in activity in Macau and continued strength in the company’s Singapore business.  We expect earnings to stand at about $0.62 per share, slightly ahead of consensus estimates. So what are some of the trends that are likely to drive earnings? See our analysis of Las Vegas Sands Earning Preview for more details.

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. Mass gaming revenue for the company’s Macau business rose to $1.45 billion during Q3 2023 or about 91% of Q3 2019 revenue. The recovery is likely to have continued over Q4 as well. For perspective, on 30 December 2023, Macau saw 11,260 international tourist arrivals, just slightly under the 12,000 visitors that entered in 2019, according to provisional numbers from the Macao tourism office. 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, and things held up well over the holiday quarter.

Amid the current backdrop, 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 30% 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. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – 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, with per-capita spending expected to grow. LVS is well positioned to cater to growth given that it has over 12,000 rooms in the region. 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] Returns as of 1/22/2024
[2] Cumulative total returns since the end of 2016

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