Las Vegas Sands: Leading Asia Gaming Position Alive and Well, as Market Recovery Continues

Las Vegas Sands LVS shares moved lower 3% after hours following its second-quarter results on the potential for lower dividend payouts and delay in construction of a fourth tower in Singapore. But we plan to lift our $57 fair value estimate about $2 per share to account for a stronger Macao gaming revenue recovery in 2023, which we think should be the focus for investors. We see shares as fairly valued.

Sands’ Macao sales reached 76% of 2019′s level versus 54% last quarter, driven by industry visitation rebounding to 63% of prepandemic marks versus 47% last quarter. Adjusted EBITDA was also impressive at 71% of 2019′s level, amounting to a 33% margin. We plan to increase Sands’ 2023 Macao sales to mid-70s of 2019′s level from about 60%, as we take our industry gaming revenue forecast recovery to low-60s from about 50% prior; we still see industry gaming sales near a full recovery in 2024. Long term we remain constructive on the large demand source of 1.4 billion people in mainland China serviced by just six market licenses.

Management removed guidance for completion of its fourth tower in Singapore until it finalizes terms with the government. We see this as a temporary delay, as Sands’ strong track record of operating its existing resort in the country should remain an incentive for the government to allow the company to expand its footprint.

Sands also commented that future shareholder returns would be more balanced between dividends and share repurchases. This is likely to disappoint some of the company’s investor base, given Sands prepandemic history of fully paying out net income. Conversely, other investors might see this shift as positive, in that it can drive higher earnings growth and leave more capital toward high return-on-investment projects. Our take is favorable, given gaming growth opportunities we see in Asia and potentially U.S. markets like Texas, which should take precedent over a full dividend payout. We are maintaining our Exemplary Capital Allocation Rating.