Macau And Digital Risks Will Curb Returns Yet Spur Recovery

Key Takeaways

• Overdependence on Macau and Singapore assets, regulatory pressures, and demographic shifts may threaten long-term earnings stability and margin growth.
  
• Digital gaming's rise and geopolitical risks could undercut traditional casino visitation and tourism-driven revenue growth.
  
• Overdependence on Asian markets, rising costs, digital competition, and geopolitical tensions threaten revenue stability and margin sustainability for physical resort operations.

Catalysts

Owns, develops, and operates integrated resorts in Macao and Singapore.

• While the company has completed major redevelopment at both the Londoner in Macau and Marina Bay Sands in Singapore-which positions it to benefit from the growth in high-value tourism and the rising middle class in Asia-there is persistent risk that heightened geopolitical tensions and travel restrictions between China and the US may suppress inbound tourism and revenue growth over the long term.
  
• Even though new gaming innovations and side bets, combined with advanced smart technology, are expected to drive higher table hold percentages and boost EBITDA at core resorts, the increasing shift toward online gaming and digital betting alternatives could gradually erode physical casino visitation and contribute to structural revenue declines at brick-and-mortar properties.
  
• Although ongoing investment in luxury and non-gaming amenities should yield improved margins and more diversified cash flow streams, intensifying regulatory pressures-particularly around ESG requirements and mandated non-gaming spend in Macau-could lead to a sustained rise in operating expenses and capex, limiting margin expansion.
  
• The company's scale and diversified asset portfolio theoretically offer a competitive edge to recapture market share as the Macau and Singapore rebound continues; however, overconcentration of assets in these markets, concession renewal uncertainty in Macau, and fierce competition from new regional entrants expose earnings to long-term volatility and potential downside risk to stable EBITDA contributions.
  
• While Las Vegas Sands' ongoing share repurchase program and resumption of dividends provide immediate support to per-share financial metrics, demographic shifts as younger consumers show less interest in traditional gaming activities may constrain the long-term growth trajectory of both revenues and net margins.

Las Vegas Sands Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Las Vegas Sands compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Las Vegas Sands's revenue will grow by 5.1% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 11.6% today to 15.5% in 3 years time.
• The bearish analysts expect earnings to reach $2.0 billion (and earnings per share of $2.96) by about July 2028, up from $1.3 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 18.0x on those 2028 earnings, down from 26.4x today. This future PE is lower than the current PE for the US Hospitality industry at 24.5x.
• Analysts expect the number of shares outstanding to decline by 4.05% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.96%, as per the Simply Wall St company report.

Las Vegas Sands Future Earnings Per Share Growth

Risks

• The company's heavy reliance on Macau and Singapore exposes it to elevated risks from regulatory changes, increased government scrutiny of non-gaming activities, and potential tightening of concession terms, all of which could compress net margins and earnings power over the long term.
  
• Intensifying competition within Macau, coupled with shrinking liquidity and slower market growth, is eroding market share, pressuring the ability to maintain revenue growth and overall operating leverage-management admits historical advantages are no longer easily sustainable.
  
• Persistent cost inflation, notably rising labor and renovation expenses, has led to negative operating leverage in recent quarters, and continued upward pressure on these costs threatens to reduce margins and undermine earnings stability, especially as wage inflation outpaces revenue growth in key segments.
  
• Increasing adoption and legalization of online gaming and iGaming in core markets such as New York is seen as a threat to the viability and returns of future land-based development, raising concerns that shifting consumer preferences to digital channels will cannibalize long-term revenues at physical resort properties.
  
• Continued U.S.–China geopolitical tensions and protectionist policies could dampen cross-border tourism flows and discretionary spending, creating structural headwinds for Sands' Asian resorts and potentially undermining both revenue and cash flow generation for years to come.

Valuation

• The assumed bearish price target for Las Vegas Sands is $45.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Las Vegas Sands's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $70.5, and the most bearish reporting a price target of just $45.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $13.0 billion, earnings will come to $2.0 billion, and it would be trading on a PE ratio of 18.0x, assuming you use a discount rate of 9.0%.
• Given the current share price of $48.69, the bearish analyst price target of $45.0 is 8.2% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.