Will Tides Turn For Las Vegas Sands Stock?

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Since March, shares of Las Vegas Sands (NYSE:LVS) And Penn National Gaming (Nasdaq: Penn) The first quarter has seen a deep contraction after seeing a strong rally. While anticipation of increased regulatory oversight has fueled pessimism in Las Vegas Sands stock, shares of Penn National Gaming saw a broad-based correction along with other sports betting stocks. Interestingly, despite the large difference in revenue, Sands and Penn have comparable assets and long-term debt on their balance sheets. Considering Las Vegas Sands’ high profitability, fairly low market capitalization, and effective cost control measures, while limiting cash burn, Trefis considers it a good option to realize capital gains. Is. In contrast, Penn stock hit historic highs in March as investors speculated on the market share gains of its sports betting application, Barstool. We compare multiple factors such as historical revenue growth, returns and valuation multiples in an interactive dashboard analysis, Las Vegas Sands vs Penn National Gaming: Industry partner; Which stock is the better bet? (related: Las Vegas Sands Stock is a Steal,

1.Revenue Growth

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Penn National’s growth before the pandemic was much stronger than that of Las Vegas Sands, with Penn’s revenue growing at an average rate of 20% per year from $3 billion in 2016 to $5.3 billion in 2019. Las Vegas Sands Revenue Which grew at an average rate of 7% per year from $11.2 billion in 2016 to $13.7 billion in 2019. Due to the pandemic, both companies saw a sharp contraction in their top line as travel demand and discretionary spending declined.

  • Penn National’s core services, including gaming, food and beverage, hotels, racing and others, contribute 81%, 10%, 6%, 1% and 3% of total revenue, respectively. The company’s gaming business has seen strong growth in recent years, primarily driven by a number of acquisitions. Notably, the company generates approximately 90% of gaming revenue from slot machines, with a casino win rate of 7%.
  • Penn National Gaming is committed to the long-term success of its sports betting application with the goal of achieving leadership positions in all states. Currently, barstools contribute less than 1% to total revenue and are expected to reach meaningful levels by 2023.
  • Before the pandemic, Sands’ properties in Macau, Vegas and Singapore accounted for 63%, 15% and 22%, respectively, of total revenue. The company’s Macau business was seeing strong growth aided by new property openings, mass-market gaming stakes, and growing tourist influx. Since temporary property closures resulted in operating losses, the company completely shifted its focus to high-growth Asian properties by announcing the sale of its Vegas resort during the first quarter.
  • Currently, proposed changes to Macau’s gaming law are suspected to affect all concessionaire operations and capital return policies. Thus, Sands is likely to see a headwind as its long-term growth plans are focused on Asia and Macau in particular.

2. Returns (Profits)

Speaking of returns, Sands reported a much higher operating profit margin and net margin than Penn National Gaming. In 2019, Sands and Penn reported operating profit margins of 27% and 11%, respectively.

  • Being a leading integrated resort operator, Sands has a well-established capital return policy. The company’s net income margin of 20% has been instrumental to regular dividend payments and stock repurchases. In 2019, Sands reported net revenue of $13.7 billion and operating cash flow of $3 billion on an operating cash flow margin of 22%. The company returned $3 billion to shareholders in the form of dividends and managed $1 billion of capital expenditures from the sale of assets.
  • Similarly, Penn National reported $2.3 billion of total revenue and $704 million of operating cash flow in 2019 on an operating cash flow margin of 30%. The company used $608 million of operating cash on property, plant and equipment and acquisitions. Notably, operating cash flow margin saw a jump in 2019 due to impairment charges.

3. Risk

As of the most recent filing, Sands reported $14 billion in long-term debt, $2.4 billion in total equity, and $20 billion in total assets. Whereas, Penn National reported $11 billion in long-term debt, $3 billion in total equity, and $16 billion in total assets. Las Vegas Sands has higher financial leverage than Penn National Gaming.

  • Despite a prolonged downturn caused by the coronavirus crisis, Sands did not file massive impairment charges, but Penn National Gaming reported an impairment charge of $623 million in 2020.
  • While higher financial leverage leads to higher cash burns during recessions, Sands’ tighter cost control measures limited operating cash to just $1.3 billion in 2020.
  • Penn National’s nearly comparable long-term debt obligations are likely to be a drag on shareholder returns, compared to Sands’ $13 billion in revenue of Penn National’s $5.3 billion.
  • Considering a scenario where business in Macau and Singapore returns to normal by mid-2022, Sands’ higher margin will generate more cash than Penn National Gaming. In our previous article, Should you bet on Las Vegas Sands stock after the historic announcement?In this article, we highlight the importance of the EBITDA margins of Sands’ Singapore and Macau properties.

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