Posted on: December 20, 2023, 10:58h.
Last updated on: December 20, 2023, 11:21h.
Las Vegas Sands (NYSE: LVS) was added to Deutsche Bank’s “Fresh Money List” for the first quarter of 2024. It is a group of stocks on which the research firm has high convictions entering the new year.
The largest casino operator by market capitalization is one of nine consumer stocks to make the cut and the only gaming equity in the group. That adds to a flurry of bullish calls on the Venetian Macau operator, which has recently garnered attention as one of Wall Street’s top gaming ideas for 2024. LVS shares are up just 1.73% year to date, badly lagging the 24.31% returned by the S&P 500.
We see considerable value in LVS shares at current levels and we believe some of the concern around the trajectory of the recovery in Macau is misguided, with too much being read into short term data points,” wrote Deutsche Bank analyst Carlo Santarelli in a note on Wednesday. “We see this rationalizing over time and believe LVS, from both a fundamental and valuation perspective, represents a compelling long idea moving forward.”
The analyst noted the outlook for ongoing growth in Macau could be an attractive trait for investors with domestic-heavy, consumer-oriented portfolios. At the moment, Sands doesn’t run a U.S. casino hotel. That could be advantageous amid expectations that U.S. consumers will reduce wagering-related spending next year.
China, Macau Headwinds ‘Understood’
Macau has recovered in earnest this year from the worst of China’s coronavirus restrictions. But shares of five of the six concessionaires, including Sands China, slumped mightily, with only MGM China clinging to a modest gain.
That has stocks, including Sands China, trading at deeply discounted earnings multiples and at prices that belie the special administrative region’s (SAR) strong gross gaming revenue (GGR) trends. Those depressed valuations could be symptoms of investors fretting about high levels of property investment by operators and concerns that China’s sluggish economy could hamper gaming-related spending.
Santarelli argues that those factors are known and understood, and adds that previous periods of Chinese economic weakness haven’t pressured Macau spending.
“Clearly, the growth outlook offered by the Macau-oriented stocks has not been a reason for investors to gravitate to them of late. Yet we don’t believe the market outlook has changed materially, if at all, and LVS shares offer an attractive investment opportunity,” observed the analyst.
Las Vegas Sands Offers ‘Considerable Value’
Santarelli acknowledged shares of Las Vegas Sands currently offer “considerable value,” adding that both LVS and Sands China are inexpensive relative to historical norms.
The analyst also highlighted the operator’s shareholder rewards efforts, including the restoration of its quarterly dividend and a recently announced $2 billion share repurchase plan, the latter of which could lend some support to the sagging stock.
“Management has noted that it has historically allocated capital returns in an 80/20 fashion with dividends and buybacks. But given current levels in shares, LVS expects buybacks to outpace dividends going forward,” concluded Santarelli. “Recall, LVS currently pays an ~$0.80 annual dividend, which equates to ~$600 million per year. Given current valuation, 10.3x our 2024 adjusted EBITDA estimate and 9.1x our 2025 adjusted EBITDA estimate, we expect LVS to be aggressive with the buyback in the early stages.”
