Las Vegas Sands (NYSE:LVS) is in rally mode Tuesday after drawing some support from a widely followed gaming analyst.
In midday trading, the downtrodden casino name is higher by seven percent on volume that already topped the daily average after JPMorgan’s Joseph Greff raised his rating on the shares to “overweight” from “neutral.” The bank also added Sands to its Focus List as a value idea.
We think the risk-reward is favorable after massive share price underperformance in 2021 with LVS (and the rest of the Macau centric U.S listed stocks) lagging the rest of the re- opening sectors (U.S. Gaming, Lodging, Cruise lines),” said the analyst in a note to clients.
Las Vegas Sands, the largest casino operator by market capitalization, shed 35.42 percent over the 12 months ending Jan. 10. Last year, the stock was punished as investors became increasingly disheartened with the pace of recovery in Macau — the company’s largest market.
China’s zero-tolerance policy on COVID-19 kept travel restrictions in place for much of 2021. Later in the year, shares of the six current concessionaires, including Sands, slumped amid speculation authorities in the special administrative region (SAR) are looking to boost regulations on gaming companies.
LVS Stock Becoming Battleground
Greff’s positive take on LVS comes a day after Bank of America analyst Shaun Kelley downgrade the stock to “underperform” from “neutral”, citing Macau risk. On Monday, Jefferies also revealed a downbeat view on Macau.
With the shares down more than 35 percent over the past year, it’s not hard for analysts to be bearish on Sands, but some analysts are supportive of the stock on the basis this will be the year Macau shows improvement. Additionally, some on the buy side believe LVS is a credible value play and that patient investors could be rewarded for sticking with the biggest Macau operator.
JPMorgan’s Greff points out that “risks priced in after a year of incremental regulatory concerns (adverse licensing renewal terms, the likely death of the junket VIP business) and the sell side cutting estimates.”
He adds that the current level of investor apathy toward Macau names is the worst he’s seen in 22 years of covering the sector. That makes LVS and the other concessionaires contrarian bets, but financial market history confirms that when investor ambivalence toward a specific group runs highs, there’s often money to be made.
It’s All About Travel
Sands currently runs six integrated resorts, five of which are in Macau and the other is Marina Bay Sands (MBS) in Singapore. That’s confirmation the company is highly tethered to travel policy in the Asia-Pacific region.
While figuring out exactly when Beijing will loosen travel restrictions in China is a tricky endeavor, Greff notes it’s possible some good news could emerge on that front over the near-term.
“Travel mobility could incrementally ease after the Beijing Winter Olympics next month and, depending on vaccination and infection rates, could start to loosen,” said the analyst.
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