Las Vegas Sands: Rising Free Cash Flow and a Promising Future
Posted on: October 17, 2024, 03:15h
Last updated on: October 17, 2024, 03:15h
Las Vegas Sands (NYSE: LVS) is emerging as a resilient player in the gaming industry, primarily due to its rising free cash flow, which bodes well for shareholder returns. As the company navigates the post-pandemic recovery landscape, its strategies regarding dividends and share repurchases are attracting considerable attention.
Strong Cash Flow Metrics
In a recent report by Moody’s Investors Service, it was highlighted that Las Vegas Sands could see its retained cash flow to net debt ratio soar to 33% within the next 12 to 18 months, up from 28.8% at the conclusion of Q2 2024. This significant uptick is attributed to the ongoing recovery in Macau, where Sands China, the company’s subsidiary, operates five integrated resorts. Moody’s described LVS as a firm that has historically returned substantial capital to its shareholders—a strategy they are likely to continue due to the increasing cash flow.
“LVS has historically returned a significant amount of capital to its shareholders,” according to the ratings agency. “Partly mitigating this concern is that LVS’s consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) in normalized operating environments has more than covered cash outlays for cash dividends and distributions, maintenance capital expenditures, and the repurchase of common shares.”
A Look at Dividends
Following an extended suspension of its dividend during the initial stages of the COVID-19 pandemic, which lasted over three years, Las Vegas Sands resumed its quarterly dividend in August 2023. The current payout stands at 20 cents per share each quarter, representing a yield of 1.58%. Moody’s estimates that this payout costs LVS approximately $150 million per quarter.
The report indicated a potential for Sands China to restart its dividend by 2025, a prospect that aligns with expectations from Wall Street analysts. Currently, Sands China is one of three major concessionaires in Macau that does not distribute dividends, joining the ranks of Melco Resorts & Entertainment and SJM Holdings, both of which also refrain from payouts.
Share Buyback Initiatives
In addition to dividends, Las Vegas Sands has been active in repurchasing its shares. In the past year alone, the company bought back $1.36 billion worth of its stock, supported by its strong liquidity position. According to Moody’s, Sands still has $645 million remaining on its authorized buyback program, indicating the company’s commitment to enhancing shareholder value as it continues to grow its cash reserves.
Assessing Sands’ Liquidity
Regarding liquidity, Moody’s pointed out that Sands finds itself in a robust financial position, holding $4.7 billion in cash and having access to an additional $4.4 billion from a revolving credit facility. This strong liquidity enables Sands to forecast capital expenditures of $1.5 billion for the year, primarily focused on enhancements to its properties, notably the Londoner Macau and Marina Bay Sands in Singapore. Expectations for capital expenditures in 2025 are projected to decrease to $1.15 billion, further stabilizing its financial outlook.
The Challenge of Future Investments
However, not all is settled for Sands. Moody’s flagged potential risks to the credit rating stemming from heavy investments in new projects, which are likely to be funded through debt. The company is actively pursuing diversified opportunities, including a casino permit in New York and expressing interest in potential developments in Thailand. While these projects could elevate Sands’ market position, they do introduce concerns regarding temporary leveraging.
“From a credit perspective, it’s potentially concerning that LVS will continue to pursue further and significant global casino resort development opportunities that will likely be funded largely with debt, leading to temporary leveraging,” concluded Moody’s.
Conclusion: A Bright Horizon?
As Las Vegas Sands continues its journey of recovery and growth, its rising free cash flow and strategic financial maneuvers position it favorably in the gaming industry. With an eye toward shareholder returns through dividends and buybacks, LVS is taking significant steps to solidify its reputation as a return-generating entity. The ongoing recovery in Macau, alongside solid liquidity and cautious investment strategies, suggests that Las Vegas Sands may be in for an optimistic chapter ahead in the thriving world of casino gaming.
In the intricate landscape of the casino industry, Las Vegas Sands stands out as a company poised to capitalize on evolving market dynamics while keeping its shareholders’ interests at the forefront.
