Morningstar has issued a BUY recommendation for Las Vegas Sands Corp (LVS) with a fair value estimate of $60 per share, reflecting a 21% upside potential from the current price of $49.53. The company’s strategic focus on Macao and Singapore, coupled with its robust capital allocation and investments in asset upgrades, positions it well for long-term growth. Recent revenue growth is attributed to post-pandemic recovery in gaming and non-gaming revenues in Asia, supported by infrastructure improvements and expanding market opportunities. While regulatory and economic risks persist, LVS's narrow economic moat and focus on high-margin segments offer resilience.

Morningstar’s BUY Call on Las Vegas Sands Corp

Morningstar maintains its BUY rating on Las Vegas Sands Corp, citing strong fundamentals and robust growth potential in Asia. The fair value estimate of $60 per share highlights significant upside, driven by the company’s leadership in integrated resorts, ongoing asset upgrades, and resilience in Macao and Singapore markets.

Key Drivers of Growth

Focus on Macao and Singapore Markets Las Vegas Sands derives all its EBITDA from its Asian operations following the sale of its Las Vegas properties. Its key revenue drivers include:
Macao Operations: Contributing 54% of 2023 EBITDA, Macao benefits from LVS’s dominant presence on the Cotai Strip and a renewed gaming license valid through 2032. Key investments include $1.2 billion in renovations and asset upgrades.
Singapore Market: Generating 46% of EBITDA, LVS’s Marina Bay Sands enjoys a duopoly position, bolstered by $8 billion in planned developments, including a fourth tower expected to open by 2031.

Strategic Investments and Asset Enhancements

Bolstering Competitive Position LVS continues to reinvest in its properties to maintain and expand its competitive edge:
Macao Upgrades: Recent investments of $2.2 billion include converting Sands Cotai Central into The Londoner and upgrading the Four Seasons resort. These efforts target high-margin mass and non-gaming segments.
Singapore Expansion: The $8 billion fourth-tower project at Marina Bay Sands, slated for completion by 2031, is expected to yield over $1 billion in annual EBITDA by 2032.

Financial Performance and Valuation

Robust Growth and Margin Expansion - Revenue Trends: LVS reported strong revenue growth in 2023, reaching 74% of pre-pandemic levels in Macao and exceeding 150% in Singapore. - Margin Recovery: Macao EBITDA margins improved to 33.9% in 2023, with expectations to reach high-30s by 2030. - Valuation Metrics: At a Price/Fair Value of 0.83, the stock remains undervalued, offering an attractive entry point for investors.

Risks and Challenges

Regulatory and Market Concerns Despite its strong market position, LVS faces notable risks: - Regulatory Oversight: Government controls over labor, table allocations, and visa policies in Macao can affect operations. - Economic Uncertainty: Slower-than-expected economic recovery in China could impact visitation and gaming revenues. - Competitive Pressures: Emerging markets like Japan, South Korea, and Thailand could pose long-term challenges.

Investment Outlook

Why Morningstar Recommends BUY Morningstar’s positive outlook on LVS is anchored by its: - Market Leadership: Dominant positions in high-growth markets of Macao and Singapore. - Strong Moat: Narrow economic moat supported by regulatory barriers and integrated resort expertise. - Capital Allocation: Exemplary execution of asset upgrades and shareholder-friendly policies.

Disclaimer

This analysis is for informational purposes only and should not be considered investment advice. Investors are advised to perform their own due diligence or consult financial advisors before making investment decisions.