Time To Gamble On This Casino Stock?

Wynn Resorts (NASDAQ: WYNN) operates luxury casinos and resorts, including Wynn Las Vegas, Encore Las Vegas, Wynn Macau, Wynn Palace Cotai (Macau), and Encore Boston Harbor. It also has plans to expand its services into Japan and Australia.

Are these growth plans going to spark further growth and warrant buying the stock or is it time to sell, sell, sell?

51% YoY Growth, Wow!

Wynn’s Las Vegas property recently reported its 2022 full-year earnings of $801 million, resulting in a 51% increase in year-over-year (YoY) growth.

The company’s CFO, Julie Cameron-Doe, attributed the positive results to the company’s “broad-based strength,” focused on non-gaming offerings, including entertainment and retail.

Wynn Vegas also showed an improvement in Q4 earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR). The company’s North American property revenue has beaten expectations.

Specifically, Wynn Las Vegas Resort saw a record $219 million in EBITDAR, 18% more than the previous quarter. Additionally, Wynn’s Las Vegas property saw a 69% increase in slot handle ratings (the amount waged by guests at slot machines) in 2022 compared to pre-pandemic levels 3 years prior.

Key Points

  1. Wynn Resorts operates luxury casinos and resorts globally, with plans to expand into Japan and Australia.
  2. The company’s Las Vegas property reported a 51% YoY growth in 2022 full-year earnings.
  3. Some concerning aspects include a decline in revenues vs 10 years ago and an elevated valuation.

The Macau Tailwind

Wynn Macau has been on a tailwind for overall revenues thanks to its recent reopening when China eased pandemic and travel restrictions.

In particular, Q1 2023 saw a rebound in EBITDAR during the Chinese New Year (CNY) period resulting from pent-up guest demand. The improvement follows 2022’s EBITDAR loss of $59.1 million.

Wynn Resort Limited’s CEO, Craig Billings, described the results as “the strongest EBITDAR performance since the onset of the pandemic.” The Macau property also saw an estimated $4 million daily normalized EBITDAR and an impressive table drop rate (the amount exchanged by guests for casino chips) at 95% of pre-pandemic values.

A bump in the otherwise smooth road may stem from VIP gaming shares, however. These have been important to WYNN, contributing as much as 40% of the total revenue. However, China’s regulatory crackdown on VIP junket operators may prove to be a headwind.

WYNN received 76% of its 2019 pre-pandemic EBITDA from Macau and 24% from Las Vegas. Historically, the movements in Macau weigh heavily on Wynn share price.

The Future For Wynn

Pandemic restrictions continue to hurt the casino sector. However, WYNN has shown positive growth trends from Q4 2022 and may continue to see an uptrend and return to profitability later this year. While Wynn Resorts had a $424 million net loss for 2022, it is a significant improvement from 2021’s loss of $756 million.

Further easing of restrictions and the rise of retail sports betting at Encore Boston Harbor Resort in MA could catalyze higher revenues. Additionally, Wynn Interactive, the company’s digital sports betting and online gaming platform, has the potential to be a growth lever; over 30 states have launched some form of legal sports betting.

When we ran the numbers, though, some concerning aspects were apparent. First, revenues in 2013 were $5.6 billion versus $3.7 billion last year. Growth had been fairly consistent until global shutdowns took effect, and it’s clear those issues have persisted.

Most importantly, valuation is elevated at this time. We see fair value at $100 per share, which currently is about 9.6% lower than where the share price currently sits.