Should you bet on Las Vegas Sands stock returning to $60?

Las Vegas Sands stock is currently trading at $41 per share, about 39% below its peak of $66 before the inflation shock on March 15, 2021. The stock has been significantly impacted by its Macau operations, which generated over 60% of its revenue before the pandemic. However, its Macau business largely collapsed in 2021 and 2022 due to strict Covid-19 restrictions that severely affected the flow of tourists to the region. Now, the situation in Macau’s gambling market has recovered significantly. Tourist arrivals in Macau have rebounded sharply, and LVS and other casino players have made significant gains by releasing all the pent-up demand. In the first half of 2024, visitor arrivals increased 43.6% year-on-year to 16.7 million. In addition, Las Vegas Sands’ Marina Bay Sands property in Singapore has also shown solid performance. Revenue rose to over $1 billion last quarter and adjusted operating profit was over $500 billion, helping the stock recover from lows of about $34 per share in 2022 to about $41 per share currently.

LVS stock has suffered a sharp 35% decline from $60 in early January 2021 to around $40 now, while the S&P 500 has seen a roughly 50% increase over that roughly 3-year period. However, LVS stock’s decline has been far from consistent. The stock’s returns were -37% in 2021, 28% in 2022, and 2% in 2023. In comparison, the S&P 500’s returns were 27% in 2021, -19% in 2022, and 24% in 2023 – suggesting that LVS lagged behind the S&P in 2021 and 2023.

Actually, consistently beats the S&P 500 The last few years have been difficult for individual stocks, for better or for worse; for the heavyweights in the consumer goods sector like AMZN, TSLA and HD, and even for the mega-cap stars GOOG, MSFT and AAPL.

In contrast, the Trefis High Quality Portfolio with a collection of 30 stocks outperformed the S&P 500 every year in the same period. Why is that? As a group, the HQ portfolio stocks delivered better returns with less risk compared to the benchmark index; less of a rollercoaster ride as shown by the HQ portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could LVS find itself in a similar situation as in 2021 and 2023 and perform worse than the S&P in the next 12 months – or will there be a recovery?

A return to pre-inflation shock levels means that LVS stock will need to gain about 63% to recover from its current $41 to its pre-shock high of $66 per share. While the stock could recover to that level, we currently estimate Review of Las Vegas Sands to around $52 per share, or around 28% above the current market price. While we believe Wynn could make a profit, we think global economic concerns and a potential slowdown in consumer spending could limit the company’s upside potential in the near term. Our detailed analysis of Upward trend at Las Vegas Sands after the inflation shock captures the trends of the company’s stock during the turbulent market conditions in 2022. It compares these trends to the stock’s performance during the 2008 recession.

Inflation shock 2022

Timeline of the inflation shock so far:

• 2020 – early 2021: An increase in the money supply to cushion the impact of lockdowns led to high demand for goods; manufacturers were unable to meet this demand.
• Early 2021: Supply bottlenecks and labor shortages due to the coronavirus pandemic continue to impact supplies
• April 2021: Inflation rates exceed 4% and rise rapidly
• Early 2022: Energy and food prices rise due to the Russian invasion of Ukraine. The Fed begins its rate hike process
• June 2022: Inflation peaks at 9%, the highest in 40 years. The S&P 500 index falls more than 20% from its peak.
• July – September 2022: The Fed raises interest rates aggressively – leading to an initial recovery in the S&P 500, followed by another sharp decline
• October 2022: The Fed continues the rate hike process; improved market sentiment helps the S&P 500 recover some of its losses.
• Since August 2023: The Fed has left interest rates unchanged to allay fears of a recession, and there remains the possibility of a rate cut in 2024.

In contrast, here’s how WYNN stock and the broader market performed during the 2007/2008 crisis.

Timeline of the crisis 2007–2008

• 1.10.2007: Approximate pre-crisis high in the S&P 500 index
• 01.09.2008 – 01.10.2008: Accelerated market decline due to Lehman’s bankruptcy filing (15.09.2008)
• 01.03.2009: Approximate bottoming of the S&P 500 Index
• 31.12.2009: First recovery to the level before the accelerated decline (around 1.9.2008)

Performance of Wynn shares and the S&P 500 during the 2007/08 crisis

LVS stock fell from nearly $138 in October 2007 to under $3 in March 2009 (when markets bottomed out), meaning the stock lost over 98% of its value in the decline. However, the stock recovered some of the lost ground, rising to nearly $15 by early 2010, an increase of about 555%. The S&P 500 Index saw a 51% decline, falling from 1,540 in September 2007 to 757 in March 2009. It then recovered 48% between March 2009 and January 2010, reaching 1,124.

Wynn fundamentals of the last years

LVS revenues fell nearly 75%, reaching $2.9 billion in 2020 as the spread of Covid-19 impacted revenues in the gaming and hospitality sectors. The figure rebounded to $4.2 billion in 2021 and was $4.1 billion in 2022 as a recovery in Singapore was partially offset by weakness in Macau. Revenues rose to $10.4 billion in 2023. While the company posted losses in 2020 and 2021, earnings were $2.40 per share in 2022 and $1.60 per share in 2023.

Diploma

The Fed’s efforts to curb runaway inflation are improving market sentiment, and Las Vegas Sands stock has upside potential once concerns about a possible recession are dispelled.

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