Should You Bet On Las Vegas Sands Stock Returning To $60?

Las Vegas Sands stock (NYSE:LVS) currently trades at $41 per share, roughly 39% below its pre-inflation shock high of $66 seen on March 15, 2021. The stock has been significantly affected by its Macau operations, which generated over 60% of its revenue before the pandemic. However, business in Macau largely collapsed in 2021 and 2022 due to strict Covid-19 restrictions that severely impacted tourist inflows to the region. Now the situation in the Macau gaming market has recovered considerably. Tourist arrivals at Macau have rebounded strongly and LVS and other casino players have witnessed sizable gains from the release of all the pent-up demand. Over the first half of 2024, the number of visitor arrivals increased by 43.6% year-on-year to 16.7 million. Moreover, Las Vegas Sands Marina Bay Sands property in Singapore has also seen a solid performance with revenue growing to over $1 billion over the last quarter and adjusted operating profits coming in at over $500 billion.  This has helped the stock recover from lows of about $34 per share in 2022 to about $41 per share currently.

LVS stock has suffered a sharp decline of 35% from levels of $60 in early January 2021 to around $40 now, vs. an increase of about 50% 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 mega-cap 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?

Returning to the pre-inflation shock level means that LVS stock will have to gain roughly 63% if the stock recovers from $41 currently to its pre-shock highs of $66 per share. While the stock may recover to those levels, we presently estimate Las Vegas Sands’ valuation to be around $52 per share, about 28% ahead of the current market price. While we believe that Wynn could see gains, we think concerns about the global economy and a potential slowdown in consumer spending could limit the upside for the company in the near term. Our detailed analysis of Las Vegas Sands’ upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen over 2022. It compares these trends to the stock’s performance during the 2008 recession.

2022 Inflation Shock

Timeline of Inflation Shock So Far:

• 2020 – early 2021: An increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers were unable to match up.
• Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt the supply
• April 2021: Inflation rates cross 4% and increase rapidly
• Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process
• June 2022: Inflation levels peak at 9% – the highest level in 40 years. The S&P 500 index declined more than 20% from peak levels.
• July – September 2022: Fed hikes interest rates aggressively – resulting in an initial recovery in the S&P 500 followed by another sharp decline
• October 2022: Fed continues rate hike process; improving market sentiments help S&P500 recoup some of its losses.
• Since August 2023: the Fed has kept interest rates unchanged to quell fears of a recession and there remains a possibility of rate cuts in 2024.

In contrast, here’s how WYNN stock and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

• 10/1/2007: Approximate pre-crisis peak in S&P 500 index
• 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
• 3/1/2009: Approximate bottoming out of S&P 500 index
• 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

Wynn Stock and S&P 500 Performance During 2007-08 Crisis

LVS stock declined from nearly $138 in October 2007 to under $3 in March 2009 (as the markets bottomed out), implying that the stock lost over 98% of its value through the drawdown. However, the stock regained some lost ground, rising to almost $15 by early 2010, an increase of about 555%. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach 1,124.

Wynn Fundamentals Over Recent Years

LVS revenues declined almost 75%, coming in at $2.9 billion in 2020 as the spread of Covid-19 impacted gaming and hospitality-related revenues. The number recovered to $4.2 billion in 2021 and stood at $4.1 billion in 2022, as a recovery in Singapore was partly offset by weakness in Macau. Revenues rose to $10.4 billion in 2023.  While the company posted losses in 2020 and 2021, earnings stood at $2.40 per share in 2022 and $1.60 per share in 2023. 

Conclusion

With the Fed’s efforts to tame runaway inflation rates helping market sentiment, Las Vegas Sands (LVS) stock has the potential for gains once fears of a potential recession are allayed.

[1] Returns as of 8/23/2024
[2] Cumulative total returns since the end of 2016

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