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Las Vegas Sands Corp. Stock May Be Running on Fumes

Josh Enomoto

Although it’s a name not necessarily associated with financial stability, Las Vegas Sands Corp. (NYSE:LVS) is exactly that right now. While the broader markets are desperately attempting to reverse their bearish trajectory, LVS stock is a rare beacon. Year-to-date, shares are up nearly 4%, while the benchmark Dow Jones index is down 3%.

But can Las Vegas Sands stock continue to operate against the grain? Initial indicators suggest they can. For instance, competitors like MGM Resorts International (NYSE:MGM) and Wynn Resorts, Limited (NASDAQ:WYNN) are in positive territory for the year. The latter organization is particularly impressive, given its former CEO’s sexual harassment controversy.

The casino industry’s robustness in the face of broader headwinds segues into another point: Las Vegas Sands stock is considered a vice investment. In troubling times, vice stocks seem like a solid bet. Escapism is in high demand when the economy gets rough, and what better place to escape than Las Vegas? After all, what happens in Vegas stays in Vegas.

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Moreover, Wall Street’s sentiment towards Las Vegas Sands stock is very strong. Over the past four quarterly reports, the company produced an earnings surprise averaging 13.8%. Current year estimates are moving higher, while we’ve yet to see negative revisions.

Ultimately, this translates to stronger performances in Las Vegas Sands stock, and continued justification for its increased valuation. Unfortunately, I believe this enthusiasm is already baked into the price. Moving forward, investors should exercise caution.

Las Vegas Sands Stock Faces Difficulties

In order for gambling resorts like LVS to thrive, you need two consistent catalysts: more people and more money. As I pointed out with Wynn Resorts, Las Vegas has plenty of people visiting. The problem is that they’re not spending as much money as they used to.

In addition, Las Vegas has witnessed increasing volume from professionals attending industry conferences. Notwithstanding certain “mature” conferences, these folks aren’t necessarily partaking in the Vegas experience, as indicated by reduced revenues per visitor. That’s a tough headwind for Las Vegas Sands stock to overcome.

Worryingly, the pain may not end soon. Sin City’s tourism industry saw a significant drop in visitors during last year’s holiday quarter. Keep in mind this is also one of the best times to visit since the place isn’t hellishly hot. As a result of the tourism decline, Las Vegas had to cut jobs in affected sectors.

Moreover, last year’s horrific shooting from the Mandalay Bay has apparently negatively impacted tourism sentiment. Combined with lesser traffic volume, Vegas weddings fell to a 26-year low in 2017.

While these dynamics are challenging for any gaming resort company, Las Vegas Sands stock may see a disproportionate impact. That’s because corporate revenues have been choppy and generally unimpressive over the past four years. More significantly, the operating expenses to keep the show running are steadily rising.

Here’s the thing: Unless Vegas visitors start spending more money — and this seems an overly optimistic outlook — growth potential for LVS is limited. It’s hard to imagine a situation where investors are willing to pay more for Las Vegas Sands stock to knowingly get less.

LVS stock

Las Vegas Sands Stock Is No Moat

Some companies are such secular powerhouses that you don’t think twice about acquiring them when they’re on discount. Las Vegas Sands stock isn’t one of those investments. While I appreciate that it’s been a volatility hedge this year, I don’t think this situation will hold up.

Its core market is receiving fewer people who want to spend money. As a result, the Las Vegas economy is weaker than the U.S. average. Also, unforeseen incidents such as the mass shooting continues to negatively affect the city.

Ultimately, though, I think you have to respect the broader market weakness. We have a host of geopolitical concerns that are weighing down Wall Street, but let’s not forget the domestic issues — rising interest rates, social upheaval, multi-year high gasoline prices.

I wouldn’t be surprised if more people decided to stay home this year. If so, Las Vegas Sands stock is a poor wager.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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