Monday, December 5, 2022

Las Vegas Sands Management Needs to ‘Take a Stand’, Buyback Stock, Says Analyst

Las Vegas Sands (NYSE:LVS) reported third-quarter results late Wednesday, and the results were worse than expected. That prompted an analyst to say management should move swiftly to buyback shares in an effort to restore investor confidence.

Amid still lingering travel restrictions in Macau, where it owns five integrated resorts, LVS lost 45 cents a share on revenue of $857 million in the September quarter. Wall Street expected a loss of 26 cents on sales of $1.21 billion. The stock is down 1.4 percent following that report, extending its year-to-date decline to nearly 34 percent.

 

Owing to a slow-moving recovery in Macau – one that’s been hampered by recent operator angst regarding the possibility of increasing government oversight — financial markets are rewarding operators with heavy US exposure. In turn, they are punishing those, such as LVS, that are more reliant on Macau. Against that challenging backdrop, at least one analyst says it’s time for Sands to be bold and restore investors’ faith in the stock.

 

We believe there is no better time than now for LVS to take a major stand and demonstrate to investors they really do believe in the long-term outlook for both Macau and Singapore,” said Stifel analyst Steven Wieczynski in a note to clients today. “With a major cash infusion coming in the near future, we believe management should take advantage of a perceived dislocation in their share price and get aggressive buying back their stock.”

 

Wieczynski reiterates a “buy” rating on the largest gaming company by market value. That’s while boosting his price target on the shares to $51 from $48. That implies upside of almost 31 percent from current levels.

 

Departure from Prevailing Sentiment on LVS

Increasing a price forecast on LVS today stands out because at least four other analysts went the opposite way, lowering price objectives on the name.

 

As for return of capital to shareholders, the casino operator was once the richest dividend payer in the industry. But that payout was eliminated last year in the early stages of the coronavirus pandemic. Regarding a repurchase program, management isn’t saying “no” to the idea. But it also sees capital spending in Macau and Singapore as avenues for enhancing long-term returns.

 

“We’ll always look at the return potential of buying equity. Do we believe the equity is at a compelling level? Absolutely,” said Sands CFO Patrick Dumont on a conference call with analysts. “But at the same time, we also like to believe that we have some real significant available opportunities in the future that will create very significant returns as well.”

 

Some investors may view that as a tepid endorsement of buying back shares. Others may be frustrated that Sands isn’t unleashing a repurchase program to signal to the investment community that the stock is undervalued.

 

US companies, regardless of industry, are notoriously poor at timing buybacks, often repurchasing their own stock while it’s soaring and eschewing such moves while shares are flailing. It remains to be seen if LVS learns that lesson. But it is clear that the Venetian and Sands Expo and Convention Center sale will wrap in the first quarter of 2022, meaning $6.25 billion is heading the company’s way. That confirms it has the tools with which to enhance Macau and Singapore venues, while potentially returning capital to investors.

 

No Hail Mary’s

Thus far, Sands is sitting out the boom in iGaming and sports wagering, though earlier this year it created an investment arm dedicated to those businesses.

 

On the earnings conference call, there was some chatter about how the company will pursue exposure in those arenas. But Stifel’s Wieczynski says LVS shouldn’t be hasty in digital gaming in the name of simply playing catch-up with rivals. Investors might not reward the company for such a move, he wrote.

 

“What we don’t want to see happen is the company make a late-stage Hail Mary attempt to enter the crowded interactive/sports betting arena,” said the analyst. “At this point, we don’t even believe they would get credit for such an investment, given they would probably be overpaying for an opportunity that comes with an excessive amount of risk. Given their lack of a domestic presence, we believe they would just be overpaying for an opportunity which would probably not be overly relevant to their EBITDA base at the end of the day.”

Ty Gaston

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