Few US companies are on par with Las Vegas Sands (NYSE: LVS) to reap rewards from China relaxing its zero-COVID policy, and Wall Street recognizes as much.
In a report to clients on Tuesday, Wells Fargo analyst Daniel Politzer maintained an “overweight” rating on the Sands China parent, while increasing his price target to $53 from $45. That implies upside of 10.4% from the stock’s last closing price of 2022 and has the shares higher by about 3% in midday trading.
While there’s clear excitement in the investment community regarding China’s recent call to relax its arcane coronavirus policy, there’s plenty of pause, too. Regarding gaming equities, travel to Macau where Sands is the largest operator is subdued to start 2023. Politzer notes the first half of this year could be choppy for the six concessionaires, with some improvement expected in the back half of the year. He’s more optimistic about a gross gaming revenue (GGR) recovery emerging in earnest in 2024.
Still, the analyst’s calls on Sands and rival Wynn Resorts (NASDAQ: WYNN) are a notable kickoff to 2023. The constructive view on Las Vegas Sands arrives after its shares surged 27.71% last year, easily topping the S&P 500 and most gaming equities.
Las Vegas Sands Has Technical Catalysts, Too
Currently trading just north of $49, Las Vegas Sands resides around its highest levels in a year. The stocks recently found support around $46 on pullbacks, and some market observers believe it could be ripe for a short squeeze.
A short squeeze could provide additional tailwinds for Las Vegas Sands stock. Short interest is up 11.3% in the last two reporting periods, and the 18.27 million shares sold short make up 5.4% of LVS’ available float,” noted Schaeffer’s Investment Research.
A short squeeze occurs when a heavily shorted stock rises, forcing bearish traders to cover their positions. Covering amounts to buying, which usually forces the stock higher.
If China can effectively manage an uptick in coronavirus cases and not return to shutdowns of urban areas, that could give short sellers pause regarding positions in Macau stocks, including Sands China.
Chinese New Year Could Help Sands, Too
As the operator of five integrated resorts in Macau, Sands China is highly levered to traffic stemming from marquee holdings, including the upcoming Chinese New Year.
While that event is unlikely to resemble pre-pandemic iterations this year, there’s optimism that earnings before interest, taxes, depreciation, and amortization (EBITDA), and GGR could be relatively strong, thanks to mass market players. That’s relevant when assessing Sands because it’s the dominant operator for mass and premium mass players that frequent Macau.
“We continue to model mass GGR to recover to 30 percent to 40 percent of pre-Covid levels during lunar new year and first quarter 2023, which should be enough for the [Macau casino] industry to turn profitable on EBITDA levels,” wrote J.P. Morgan Securities analyst DS Kim in a Monday note.
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Jan 4, 2023