As Las Vegas Sands Corp. prepares to unveil second-quarter earnings in mid-July, a Deutsche Bank analyst says a lower market share in Macau will slightly impact earnings, despite a stronger than expected showing in Singapore.

In a note to investors, Carlo Santarelli wrote that market-share slippage hampers Las Vegas Sands even though Macau gross gaming revenue is slightly ahead of their second-quarter forecast. He reaffirmed a Buy for the stock, but lowered the price target from $62 to $61. LVS opened Tuesday at $41.52 and hit its 52-week low just after the opening bell at $41.20. LVS’s 52-week high is $61.25.

“We expect lower market share and reduced contributions on higher flow-through non-gaming elements to hamper Las Vegas Sands’s property EBITDAR in the second quarter,” Santarelli wrote. “Accordingly, we have revised our second-quarter Macau property-level EBITDAR estimate to $600 million from $621 million, though we have upped our Marina Bay Sands forecast (in Singapore) to $488 million from $454 million. Given changes to our 2024/2025 estimates, our price target goes to $61 from $62.”

Deutsche Bank continues to believe Sands’s shares are inexpensive, with longer-term growth “easily visible” in both Macau and Singapore via the Londoner refurbishment, the expansion at Marina Bay Sands, and other development opportunities for which Sands should be well positioned.

“With respect to Macau, we believe the share slippage is well known, though also disconcerting for investors, given what appears to be a stabilizing trajectory in gross gaming revenue trends in the market,” Santarelli said. “That brings into question the near-term growth trajectory for Las Vegas Sands. We believe most accept the rooms offline as the primary driver for the share loss, with competition on the mass side also playing a role.”

As the Londoner second phase progresses through the end of the year and into the first quarter of 2025, Santarelli noted a “likely bias to the upside” from current levels in market share, specifically on the mass side.

In 2019, Sands accounted for about 31% of the hotel rooms in the market and the mass gaming revenue share was 32.8%, Santarelli said. Currently, the Sands room footprint represents about 26% of the market with mass share as of the first quarter trailing 12 months at 30.6%. Of the 220 basis points of mass gaming revenue share loss relative to 2019, he said they believe a portion is “likely structural and relates to the rationalization” of the hotel-room share.

“We expect Las Vegas Sands to in aggregate experience about 300 basis points of market share loss year over year in the second quarter, though we expect sequential market share to be broadly consistent,” Santarelli said.

Through May, Santarelli believes Sands gaming revenue share was in the 23.5%-24% range, similar to the 23.8% share in the first quarter. For the second quarter, their model assumes mass market share of 28%, down about 150 basis points quarter over quarter and VIP share of 9%, up about 190 basis points quarter over quarter.

“Flat sequential share is somewhat disappointing given the lower VIP hold in the first quarter with the mass decline presumably attributable to the incremental room inventory being offline,” Santarelli said.

Deutsche Bank expects operating expenses excluding gaming taxes to be “relatively stable on a sequential basis, though still modestly elevated relative to the second quarter of 2023.” The firm is projecting property-level EBITDAR margins of 34.1%, down about 60 basis points relative to the adjusted first quarter property margin, though still up modestly year over year from 33.1% in the second quarter of 2023.

“One thing we believe investors will focus on – the expense side – is the hold adjusted flow through,” Santarelli said. “We are assuming it stays relatively stable in the second quarter on a hold-normalized basis.”

While Santarelli doesn’t expect changes to the pipeline, Deutsche Bank believes commentary around the disruptions at the Londoner will be a focus for investors through the second half of 2024.

“We also believe management could put forth a new estimate for the construction costs related to the Marina Bay Sands expansion in Singapore,” Santarelli said. “This project was originally expected to cost about $3 billion, including about $900 million related to the land premium paid several years ago. Given comparable developments and the cost escalation associated with these developments over the last several years, we believe a construction budget north of $4 billion is likely. That said, it is worth noting that the new facility will likely have gaming, which was not contemplated in the prior budget.”

Deutsche Bank’s $61 price target, which is down $1 from its prior target, is based on a sum-of-the-parts approach in which they apply property level multiples to estimated 2025 property level cash flow to establish a firm value, Santarelli said. The firm extracts the proportionate share of estimated year-end 2025 net debt, adjusted for construction in progress allocated to Sands.

“Our analysis generates an equity value of about $36 for Marina Bay Sands and royalty fees from Sands China,” Santarelli said. “We value the about 72% interest in LVS’s Macau operations at about $26 per share. We believe our target multiples reflect what we deem to be reasonable multiples relative to history and adjusted for market growth and reinvestment levels.”

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