Yahoo Finance Is Las Vegas Sands Corp (NYSE:LVS) A Financially Sound Company?
There are a number of reasons that attract investors towards large-cap companies such as Las Vegas Sands Corp (NYSE:LVS), with a market cap of US$43.2b. Market participants who are conscious of risk tend to search for large firms, attracted by the prospect of varied revenue sources and strong returns on capital. However, the key to their continued success lies in its financial health. I will provide an overview of Las Vegas Sands’s financial liquidity and leverage to give you an idea of Las Vegas Sands’s position to take advantage of potential acquisitions or comfortably endure future downturns. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into LVS here.
Check out our latest analysis for Las Vegas Sands
Does LVS produce enough cash relative to debt?
LVS has built up its total debt levels in the last twelve months, from US$10.1b to US$11.3b , which comprises of short- and long-term debt. With this growth in debt, LVS’s cash and short-term investments stands at US$4.4b for investing into the business. On top of this, LVS has produced US$4.9b in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 44%, meaning that LVS’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In LVS’s case, it is able to generate 0.44x cash from its debt capital.
Can LVS meet its short-term obligations with the cash in hand?
With current liabilities at US$3.0b, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.7x. For Hospitality companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is LVS’s debt level acceptable?
With total debt exceeding equities, Las Vegas Sands is considered a highly levered company. This isn’t surprising for large-caps, as equity can often be more expensive to issue than debt, plus interest payments are tax deductible. Consequently, larger-cap organisations tend to enjoy lower cost of capital as a result of easily attained financing, providing an advantage over smaller companies. We can test if LVS’s debt levels are sustainable by measuring interest payments against earnings of a company. Net interest should be covered by earnings before interest and tax (EBIT) by at least three times to be safe. For LVS, the ratio of 12.04x suggests that interest is amply covered. High interest coverage serves as an indication of the safety of a company, which highlights why many large organisations like LVS are considered a risk-averse investment.
Next Steps:
Although LVS’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around LVS’s liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven’t considered other factors such as how LVS has been performing in the past. You should continue to research Las Vegas Sands to get a better picture of the large-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for LVS’s future growth? Take a look at our free research report of analyst consensus for LVS’s outlook.
Valuation: What is LVS worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether LVS is currently mispriced by the market.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
