Las Vegas Sands Stock Hit With Downgrade, Analyst Trims Earnings Estimates, Citing Macau Slump

Posted on: August 20, 2019, 10:26h. 

Last updated on: August 20, 2019, 01:02h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Las Vegas Sands Corp. (NYSE:LVS) stock is lower by more than 14 percent just this month amid concerns business is slowing in Macau, and one analyst is growing leery of the near-term outlook for the casino operator.

The Venetian Macao. An analyst downgraded LVS stock today, citing weakness in the Chinese territory. (Image: Macau News)

In a note out Tuesday, Argus Research analyst John Staszak downgraded LVS to “hold” from “buy” while lowering his 2019 and 2020 earnings estimates on the operator of five Macau gaming properties.

We expect non-gaming operations (conventions, hotels, and retail centers) to boost the company’s revenue in Las Vegas, and to help offset weakness in the Las Vegas gaming market,” said Staszak in the note. “At the same time, we expect a decline in the number of wealthy gamblers traveling to Macau as the Chinese economy slows.”

When Las Vegas Sands reported second-quarter earnings last month, lethargy in Macau was evident. For the April through June quarter, the company notched earnings before interest, taxes, depreciation and amortization (EBITDA) in the Chinese gaming center of $765 million on revenue of $2.14 billion, missing Wall Street estimates of EBITDA of $788 million on turnover of $2.15 billion.

Speaking Of Earnings

Sluggishness in Macau, where LVS runs the Parisian Macao, Sands Cotai Central, and Venetian Macao and two other gaming venues, is the impetus behind Staszak trimming his 2019 and 2020 earnings per share (EPS) estimates on the Las Vegas-based casino giant.

For this year, the Argus analyst expects Sands to earn $3.30 a share, down from $3.70. Next year, he forecasts the company will earn $3.60, below a prior estimated of $4.

We see “limited growth at Las Vegas Sands over the next 12 months, as the US-China trade war and a slowing Chinese economy have weakened the outlook for the Macau gaming industry,” said Staszak.

While the US/China trade spat and the ongoing pro-democracy protests in Hong Kong present Wall Street with reasons to be skeptical about the near-term outlook for Macau operators, not all analysts are convinced those factors are hindering business in the world’s richest gaming mecca.

Earlier this week, JPMorgan said the Hong Kong uprising will have a modest impact on Macau gross gaming revenue (GGR). LVS shares traded higher Monday following the release of the JPMorgan note, and the stock is in the green again today despite the Argus downgrade.

Other Considerations

Staszak, the Argus analyst, acknowledged that if the US/China trade tensions cool, he could be compelled to revisit his view on Las Vegas Sands. His “hold” rating on the stock isn’t unusual. Ten of the 21 analysts covering the casino operator have that label on the shares, while another 11 tag LVS with “buy” or “outperform” ratings.

While shares of gaming companies with Macau exposure have struggled against the backdrops of trade battles and geopolitical upheaval, the $55 handle LVS currently resides around could eventually be seen as good value because the average analyst price target on the stock resides closer to $71, implying healthy upside from current levels.