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Can Las Vegas Sands (LVS) Replicate '19 Performance in 2020?

Zacks Equity Research

The Zacks Gaming industry has performed impressively in 2019. Year to date, the industry has surged 29.4%, compared with the S&P 500’s rally of 27.9%. In the same timeframe, Las Vegas Sands Corp. LVS, which belongs to the same industry, has also witnessed robust gain of 34%. The company’s revenue diversification efforts, planned investment in new capital projects in Macao and higher revenues from The Parisian Macao have been key catalysts.  However, flagging China property and debt burden remains a concern. Let’s delve deeper and analyze the factors that have been influencing the company.

Growth Drivers

Las Vegas Sands generates significant part of revenues from Macao amd thus continues to invest in the region. In fact, Las Vegas Sands has invested over $13 billion in Macao since 2004, consistently contributing to Macao's diversification and appeal as a business and leisure tourism destination. Notably, the company is likely to invest $2 billion in the region over the next couple of years.

At the moment, the company is focusing on expanding the Four Seasons Tower Suites Macao, St. Regis Tower Suites Macao and the Londoner Macao to strengthen resort portfolio. Backed by these investments, the company aims to benefit from the structural growth in Macao in coming years. This will also aid it in staying ahead of the curve in terms of quality and scale of its product and amenities.

Investment in  Macao has helped the company to drive revenues. In the first nine months of 2019, the company’s Macao operations reported revenue growth of 2.5%. Moreover, adjusted EBITDA for Macao improved 3.1% in the first-nine months of 2019. Additionally, it reported robust mass market growth in Macao during the same period.

Las Vegas Sands is focusing on renovation and promotion of its Las Vegas properties in order to drive segmental performance. In fact, the Las Vegas Strip has been recording high occupancy rates over the past year. The improvement in employment rate and rise in tourism numbers in the region has been fueling demand at the company’s properties in Las Vegas. Further, the diversification of its resort portfolio and non-gaming options would contribute significantly to revenues.

Moreover, EBITDA margins have been expanding consistently owing to its focus on mass and non-gaming segments that carry higher margins. This apart, Las Vegas Sands expects that it would continue to deliver growth in the non-gaming segment. Notably, it has reported margin growth of more than 30% since the beginning of 2012.


Hurdles to Cross

The trade war between China and the United Sates has been hurting gambling stocks for a while, and Las Vegas Sands is no exception to the trend. Moreover, the flagging China property price has adversely impacted the high-end VIP segment.

Las Vegas Sands’ heavy reliance on debt financing remains a concern. As of Sep 30, 2019, unrestricted cash balances totaled $3.82 billion. Total debt outstanding, including the current portion and net of deferred financing costs, along with original issue discount totaled $11.93 billion. Owing to a higher debt burden, the company might fail to finance upcoming projects. Moreover, any downturn in macroeconomic and credit market conditions would make it difficult for Las Vegas Sands to pay or refinance debt in the days ahead.

Zacks Rank & Key Picks

Las Vegas Sands, which shares space with MGM Resorts International MGM, currently has a Zacks Rank #3 (Hold). Some better-ranked stocks worth considering in the same space include Boyd Gaming Corporation BYD and Melco Resorts & Entertainment Limited MLCO. Both the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Boyd Gaming earnings in 2020 is expected to witness growth of 13.9%.

Melco Resorts & Entertainment’s long-term earnings is expected to witness growth of 21.3%.

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