Wynn Resorts (NASDAQ: WYNN) made a great comeback this year, with its stock soaring over 80% on five straight quarters of double-digit annual sales growth. Analysts expect the casino giant, which owns properties in Las Vegas and Macau, to grow its sales by 38% and its earnings by 54% this year.
However, that growth is expected to drop to 5% sales growth and 24% earnings growth next year. Those are still decent numbers, but investors might be wondering if it's too late to buy Wynn now. Let's take a look at where Wynn's headed next year to decide.
Image source: Wynn.
More growth from Macau
Wynn owns two properties in Macau -- the Wynn Macau and the Wynn Palace Cotai. These two casinos generated 68% of its adjusted property EBITDA last quarter. Revenue and adjusted property EBITDA at Wynn Macau rose by the double digits annually. Wynn Palace, which hasn't been open for a full year, also posted robust sequential growth.
Macau will continue to be Wynn's growth engine throughout 2018, since gaming revenues in the region rose annually for the 15th straight month in October. That growth allayed concerns that ongoing corruption probes would hurt major players like Wynn and Las Vegas Sands (NYSE: LVS).
During last quarter's conference call, CEO Steve Wynn stated that he was "very happy with the progress of Macau," while Macau chief Ian Coughlan stated that Wynn Macau "maintained market share" against its growing number of rivals in central Macau and the newer Cotai Strip.
Its expansion into Boston
Wynn's domestic business is centered in Vegas, where it owns Wynn Las Vegas and Encore. But it's also building a new resort in Boston, the Wynn Boston Harbor. When that 33-acre property opens in mid-2019, it will become the only integrated resort in the greater Boston area. Investors should stay tuned for updates on its progress throughout 2018.
That move is similar to Las Vegas Sands' expansion into Bethlehem, Pennsylvania. Sands' Bethlehem resort is posting solid growth, but the company is currently trying to sell it to focus on new projects across Asia.
Is Japan the next Macau?
Wynn, Sands, and MGM Resorts (NYSE: MGM) all plan to expand into Japan, which legalized casinos late last year. However, Wynn faces unique challenges in that market due to Steve Wynn's ongoing legal battle against Japanese businessman Kazuo Okada.
Okada was previously vice chairman of Wynn Resorts, but was ousted by Wynn amid allegations that Okada bribed officials in the Philippines to win a license. Okada denied the allegations and countersued Wynn.
Another potential issue is that Wynn has a much smaller MICE (meetings, incentives, conventions, and exhibitions) presence than its peers. Wynn operates about 400,000 square feet of MICE space globally, compared to MGM's 3 million square feet and Sands' 5 million square feet. Morningstar analysts claim that Wynn's weaker MICE presence, along with the ongoing bribery allegations, could make it tougher for the company to obtain licenses than Sands and MGM.
Will Wynn raise its dividend again?
Wynn currently pays a forward yield of 1.3%, which is much lower than Sands' forward yield of 4.4%. Wynn once paid a much higher dividend, but it slashed its payout by 67% in 2015 due to volatility in Macau.
But now that Wynn's growth has stabilized, investors might be wondering if Wynn will finally give its dividend a big boost. Its earnings-based payout ratio of 90% still looks high, but it spent just 53% of its free cash flow on dividends over the past 12 months, so it has room for income growth.
The bottom line
Wynn's growth in Macau will likely hold steady in 2018, but the overall growth of the region should slow from 2017 levels, and the competition from newer properties -- like Sands' Parisian Macao -- will heat up. Wynn's Vegas properties posted solid top- and bottom-line growth last quarter, but it's still unclear if the Mandalay Bay shooting in late September will weaken the region's growth over the next few quarters.
Meanwhile, investors should keep an eye out for updates on Boston, Japan, and its dividend -- which could all impact the market's interest in this hot casino stock. I personally think Wynn should keep rising in 2018, albeit at a much slower pace than this year.
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