Las Vegas Sands Is a Risky Turnaround Play

Las Vegas Sands (NYSE: LVS) is a casino and entertainment resort operator primarily in the Asian market.

In March of 2021, the company agreed to sell all of its Las Vegas assets, including the Venetian, Palazzo, and Sands Expo Convention Center. This sale will divest the company of all of its U.S. casinos, leaving operations in Macau and Singapore.

I am neutral on LVS stock.

COVID-19 Effects Are Lingering

Las Vegas Sands’ decision to sell its U.S. assets seemingly could not have come at a worse time. While the company is focusing on Asia, Las Vegas has come back stronger than ever.

The Nevada Gaming Win total has exceeded the important $1 billion barometer for seven straight months. Casinos are operating without capacity restrictions and travel continues, even if some visitors still choose to stay away.

Meanwhile, the Macau and Singapore operations still face significant headwinds. Visitation to the region has been severely constricted due to government policies aimed at fighting COVID-19.

The Omicron variant now threatens to further deter visitors just as certain restrictions, such as quarantine requirements, were recently lifted by the government. For perspective, the October Golden Week holiday saw a more than 90% drop in tourists when compared to the same week in 2019.

Travel to Singapore was also constricted. Entry was limited to citizens and permanent residents of the country until very recently. Travel is now permitted from certain countries, but only with restrictions that will likely dissuade many would-be tourists. The Omicron variant represents a significant risk that further restrictions will be enforced.

The revenue figures remain grim when compared to 2019 figures. In the nine months ended September 30, 2019, the company’s Macau and Singapore operations brought in $6.6 billion and $2.2 billion in net revenues, respectively.

Over the same periods in 2021, those figures have plummeted to $2.2 billion and $1 billion, respectively. This amounts to a 67% decline in revenue from Macau and a 55% decline in Singapore.

What is worse is that COVID-19 does not seem to be going away anytime soon. This presents significant risk for shareholders.

Will the Stock Recover?

Las Vegas Sands sold its Las Vegas operations for $6.25 billion with intentions to use proceeds to expand the business with purchases or construction of casinos in other states.

The $6.25 billion will be a windfall for the company and provide opportunities to look to expand. However, the company also has $14.5 billion in long-term debt to service at last report.

The reason that Las Vegas Sands does not merit a bearish call is that the stock price has come down nearly 50% from its 52-week high of $66.77.

The market cap has declined from over $55 billion in early 2020 to just $28.4 billion today. This could provide very aggressive investors a chance to invest in a risky turnaround play, however serious caution is warranted.

On Wall Street

Turning to Wall Street, Las Vegas Sands receives a Moderate Buy consensus rating, based on four Buy ratings and four Hold ratings. The average Las Vegas Sands price target of $52.44 implies 40.9% upside potential.

Too Many Unknowns

Las Vegas Sands made a risky strategic move by selling its Las Vegas assets. At this time, the move has not paid off. The company’s Macau and Singapore assets are struggling while Las Vegas thrives.

The infusion of cash will give Las Vegas Sands options, and management will need to navigate the company through a difficult period. These risks, coupled with macroeconomic conditions, have cut the stock price nearly in half from its recent highs. The stock is down for a reason, however, and the turnaround is less than certain.

Disclosure: At the time of publication, Bradley Guichard did not have a position in securities mentioned in this article.