Wall Street analysts were frankly underwhelmed by Las Vegas Sands‘ third quarter. Now that the company is wholly reliant upon the afflicted Macao and Singapore markets that’s hardly surprising. JP Morgan analyst Joseph Greff was pretty blunt, calling Macanese cash flow “barely positive in September,” swinging from a negative August, while characterizing Marina Bay Sands as a “locals” casino these days. (Ouch!) At least Singapore shows signs of easing up on international travel. “In terms of when travel mobility between Mainland China and Macau eases, there is no visibility on when this occurs, given China’s seemingly zero COVID-19 case tolerance; our best sense is that the earliest this takes place is sometime after the Beijing Olympics in February.” It does not help that the Macanese vaccination rate is an unimpressive 50%. At least there were no signs of new regulations upon Macao’s casinos, which is some comfort.
Investment in digital gaming “will likely be small” at least until Pacific Rim cash flow improves. Ditto share repurchases. Sands has $5.6 billion worth of powder that it’s keeping dry. The future, as Greff sees it, is one of sequential improvements “but not a heroic one.” That means mass-market gaming reaching only 60% of 2019 levels next year and VIP play an anemic 35%. By 2023, mass play should be back to 95% of normal but VIPs will still be lagging at half their pre-pandemic level, further validation of Sands’ mass-market strategy.
Summarized Greff, “We think in the near term, LVS and the other Macau-centric stocks are do-nothings … we don’t love the risk-reward here despite the sizable recent and [year to date] underperformance.” He advised a wait-and-see attitude and set his price target at a wan $36/share. By the numbers, Sands grossed $493 million in Macao last quarter, with debilitating falloffs in both mass-market (-74%) and VIP (-82%), even worse than 2Q21 as if such a thing seemed possible. Credit issuance was only 18% of pre-pandemic rates. Despite all of this, LVS is persisting with the remaining $325 million needed to turn Sands Cotai Central into The Londoner, for a late-year debut, while its Marina Bay Sands expansion ($2.3 billion unspent) has been pushed back into 2025.
Over at Deutsche Bank, analyst Carlo Santarelli yawned that “we don’t expect many will pay much attention to the financial results this evening, especially in light of the stale Consensus and the well below normalized visitation trends experienced in September.” He said his view of LVS remained favorable—in the long term and he set his price target at a bullish $65/share. He conceded that his view was “one that is likely to continue to take time to play out, given the uncertainty created by the concession/gaming law process and COVID-19 policies,” referring mainly to Macao. “Management noted that the portfolio experienced healthy traffic, on a relative basis, over a 3-week span in July, but late July and early August COVID-19 cases curbed traffic and while September began with improving trends, an additional local outbreak again stunted traffic.”
Although Sands management shunts Venelazzo into ‘discontinued operations,’ Santarelli noted that it generated $51 million of cash flow on net revenue of $290 million (down from 3Q19’s $406 million). Obviously those through-the-roof room-rate numbers aren’t telling the whole story. Is Sands just phoning it on the Las Vegas Strip these days? Like Greff, Santarelli found little to report in the digital space: “Management did not provide much of an update and reiterated that they are taking a long-term approach to the vertical … Additionally, LVS noted that they would likely be more apt to take a ‘little-by-little’ approach, meaning organic or smaller investments in early-to-mid stage companies, but management does not see themselves making a big splash with an outsized acquisition.” If online sports betting is ripe for consolidation, as some suggest, could Sands be missing an opportunity by sitting on the sidelines?
Finally, Credit Suisse analyst Ben Chaiken took a contrarian view, writing that Las Vegas was resurgent (97% occupancy) “with revenues approaching 2019 levels even without meaningful convention business … which bodes well for peers.” However Macao “remains uncertain given COVID-19 restrictions in the near term and legal/regulatory challenges in the medium term.” He projects mass-market gambling revenue to actually exceed 2019 by 5%—a bold prediction—even if VIP win lags 70% behind. “Our take is that travel/COVID headwinds are mixing with regulatory/gov. fears, but it’s too early for investors to delineate, which makes LVS attractive in our opinion.” He did, though, move his price target down to $60 from $69. Like Greff, Chaiken is skeptical of share buybacks, albeit for a different reason. He thinks fretfulness over concession renewals in Macao will cause management to stay its hand. No question, even with travel restrictions easing into Singapore from selected countries, Sands is leading with its chin with its all-Asia strategy.
Elon Musk‘s Las Vegas Convention Center people mover sufficiently impressed Sin City movers and shakers (and firm believer Vital Vegas) to get him the nod to good ahead with his ambitious Vegas Loop. We talking 51 stations and 29 miles of tunnel. Musk does not think small. (If the Las Vegas Monorail‘s fate hadn’t already been sealed, this would have done it.) Clark County commissioners were so convinced by Musk’s pitch and ability to deliver that they gave him unanimous approval. The Loop will not only run from Downtown to the terminus of the Las Vegas Strip, it will reach eastward to the University of Las Vegas-Nevada campus and jog westward to take in Allegiant Stadium, thereby assuring itself plenty of traffic both ways. Musk still needs to negotiate a franchise agreement with the City of Las Vegas and each of the 51 stations will require its own land-use permit. So don’t pop the champagne corks yet.
Lots of news from our Atlantic City bureau. Bally’s Corp., in a bid to revitalize interest in the Claridge Hotel, has installed a webcam where you can follow the comings and goings at the Claridge. “When the Claridge reopened as a non-casino we took the tour. It has an underground tunnel for sea water when this building had sea water bathtubs, and a separate fresh water supply for the sinks,” reports our correspondent, who also dropped in recently at Hard Rock Atlantic City (“which looked like mid-week October attendance”) and the less-fortunate Golden Nugget (“which looked like mid-winter during a snow storm”). Borgata was sold out last weekend so our bureau settled for the Nugget again, incentivized by some Guess Who tickets (“or at my age the guess who, what, and where”). Evidently standards are slipping at the Nugget: “We plan to buy pillows and leave them there, and will take some handy wipes to clean some of the bathroom.” Tilman Fertitta, look to thy laurels! Finally, Philadelphia Live is the new “sugar house” in town, as $1K in slot play gets you 6.5 pounds of candy or three pounds of chocolate. Is it worth it?
Jottings: Nevada‘s newest GOP candidate for governor, joining a crowded field, is Michele Fiore. In her campaign ad, she brings the crazy. Since she’s firmly in the tradition of Sharron Angle, we fully expect her to be the eventual nominee … Incumbent Gov. Steve Sisolak (D) might want to leave the driving to others. He’s been cited for failure to yield to oncoming traffic in a two-car smashup last Sunday. The guv was (inexcusably) allowed to skip a field-sobriety test … Another domino toppled in the fight against smoking. The council of the Navajo Nation voted 20-3 to go smoke-free in all public spaces, yes, including casinos. It may not be a large domino but it’s indicative of which way the smoke is blowing … Station Casinos is taking a no-harm/no-foul stance in a kerfuffle involving 348 incidences of past-posting, saying no money was won or lost. Even so, it’s scrapping Stadium Technology Group’s sports-wagering system in favor of a new one by GAN Ltd., making its Silver State debut … Calumet City and Lynwood have both been dumped from contention for a south-Chicagoland casino. Illinois regulators scratched the two applicants … Maryland‘s new sports betting regime is having a hard time getting out of the gate. However, that’s giving OTBs and other small operators a chance to catch up with ‘big three’ casinos MGM National Harbor, Maryland Live and Horseshoe Baltimore, leveling (they hope) the playing field. The casino threesome had been expected to debut first in the Free State.
Quote of the Day: “No one is useless in this world who lightens the burden of it for anyone else.”—Charles Dickens
