Satsa pengar på Wynn när Macau återöppnar
Slopade covidrestriktioner har fått kineserna att återvända till spelmetropolen Macau. Det är efterlängtat för Las Vegas-baserade Wynn Resorts, som expanderat sin kasinoverksamhet dit. Före pandemin svarade den kinesiska staden för hela 70 procent av bolagets intäkter. Under fjolårets nedstängningar var motsvarande siffra nere på 19 procent.
Nu när trängseln ökar vid rouletteborden igen siktar ledningen på att nå prepandemiska omsättningssiffror. Det kan gå snabbare än vad analytikerna på Wall Street räknar med, vilket skulle ge skjuts åt aktien, skriver Barron’s.
Barron'sIt’s Time to Roll the Dice on Wynn Stock
Casino stocks can seem like a gamble, especially when they have been on a roll. Shares of Wynn Resorts look like a good bet.
Wynn (ticker: WYNN), which runs casinos in Las Vegas and Macau, has climbed 24% this year, buoyed by the lifting of all Chinese Covid-19 travel restrictions in February. That easily outpaced both the S&P 500 index and the iShares MSCI China exchange-traded fund (MCHI). The stock fell 6% this past Tuesday amid concerns over a new wave of Covid emerging in China—after a health official predicted that infections would peak at 65 million a week toward the end of June.
While a Covid resurgence is a risk to the recovery, the dip makes the shares a more attractive proposition, especially with the stock trading at 22.5 times 2024 earnings estimates, its lowest level since March 2020.
Of course, there’s more to Wynn than just Macau. Las Vegas is still firing on all cylinders, and Wynn is building casinos elsewhere to help expand its footprint beyond those two global gambling centers. It even announced that it will resume paying a quarterly dividend next month.
But Macau, and its continuing rebound, is where the real opportunity lies. “We continue to think that our thesis of ‘all roads lead to Macau’ is very much intact, given the steady, sequentially growing recovery that is still in its relatively early innings,” writes J.P. Morgan analyst Joseph Greff, who has an Overweight rating and $142 price target on the stock, 40% above recent levels.
As Macau goes, so goes Wynn Resorts. While Las Vegas was once the heart of its business, today its casinos in China, including the Wynn Macau and the Wynn Palace, are the lifeblood of the business. In 2019, before Covid-19 shut down the global economy, Macau accounted for 70% of Wynn’s revenue. In 2022, it accounted for just 19%.
That changed in the first quarter of 2023. Wynn’s Macau property portfolio returned to profitability, with earnings before interest, taxes, depreciation, and amortization, or Ebitda, of $156 million in the first quarter. But even at those levels, there’s still more to go. That first-quarter Ebitda was only 40% of 2019 levels and didn’t reflect a full quarter without restrictions. Ferry capacity between Macau and Hong Kong reached only 25% at the end of March, while part of one of Wynn Macau’s casinos was closed due to renovations.
The gains have continued in the second quarter. Gross gaming revenue in the region rose 16% month over month to $1.8 billion in April—the best month since January 2020, according to government data, juiced by a bumper Golden Week holiday, which ran from late April to early May.
The occupancy rate of Macau’s hotels reached 85% over that period, according to government tourism data, and Wynn CEO Craig Billings said the holiday season outperformed 2019 levels in a number of areas. “Turnover,” industry jargon for the amount of money bet, from wealthy VIP guests visiting on their own—as opposed to those visiting through a junket operator—was more than double 2019 levels.
Returning to pre-Covid levels remains the goal for the company—and that would boost the stock. Wall Street predicts that Wynn’s Macau operations will report about $750 million in Ebitda in 2023, about half the $1.4 billion it earned in 2019, and then $1.2 billion in 2024, still short of that level.
”The big risk for Las Vegas might be the macroeconomic backdrop”
Still, pre-Covid levels could be reached earlier than Wall Street expects. Barclays analyst Brandt Montour sees Macau earnings reaching 78% of 2019 levels during the second half of this year, and even that number could prove conservative.
“Evidence is accruing that Wynn’s Macau business is heading for 2019 Ebitda generation faster than we—or we think anyone—thought, and soon we could be talking about ‘how much above 2019,’ ” says Montour, who has a Buy rating and a $135 price target on the stock, implying a nearly 35% gain from recent levels.
The company’s Las Vegas properties, which include Wynn Las Vegas and Encore Las Vegas, did the heavy lifting as Macau suffered under China’s zero-tolerance Covid policy. And the Las Vegas recovery is continuing apace. The company’s Las Vegas property portfolio reported adjusted Ebitda of $232 million in the first quarter, which management said was a record, while Wynn Las Vegas also had its best April ever last month.
The big risk for Las Vegas might be the macroeconomic backdrop in the U.S. of high inflation, rising interest rates, bank failures, and a possible recession. So far, though, they haven’t been able to stop Wynn’s momentum, says CEO Billings. “Everybody...keeps waiting for the shoe to drop in Vegas,” he explains. “And it hasn’t to date.”
Wynn is also building a new resort in the United Arab Emirates—called Wynn Al Marjan Island—which is expected to open in early 2027. Wynn recently said it expects the property to generate $450 million to $600 million in Ebitda annually.
Wynn is confident enough in its business that it reinstated its dividend at its first-quarter earnings report, making it the first of the Macau-exposed U.S. casino companies to do so. The stock will pay a 25 cent dividend on June 6, good for a yield of 1%.
Add it all up and there’s enough evidence to consider rolling the dice on Wynn’s stock.