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Wynn Resorts Strategic Efforts Bode Well: Should You Hold?

Zacks Equity Research

Wynn Resorts, Limited WYNN is riding on non-gaming revenues, expansion in domestic market and rise in visitation pattern in Las Vegas. Consequently, the company’s shares have surged 28.1% in the past year compared with the industry’s rally of 14.9%. However, the U.S.-China trade war, high debt and stiff competition remain concerns. Let’s delve deeper.

Factors Likely to Drive Growth

Wynn Resorts, one of the leading companies in the gaming and lodging industry, is well-positioned to gain market share with the gradual revival of the U.S. economy. Notably, Wynn Resorts can command a premium rate compared to its peers in the gaming and lodging industry courtesy of its strong brand name. Moreover, the company recently opened Encore Boston Harbor in Massachusetts. The company intends to upgrade Encore Boston Harbor to a top performing casino in the northeast.

Moreover, the company generates a significant part of revenues from Macau resorts. Apart from the gaming business in Macau, it has been increasingly focusing on driving non-gaming revenues. Given the decent visitation pattern in Macau, and infrastructure development and government’s efforts to boost tourism, non-gaming sources are expected to drive revenues in the days ahead.

Moreover, the company’s full-scale integrated resort in Cotai, Macau, is poised to witness increased visits from tourists and leisure gamblers over the long term, which is likely to strengthen its position in the Cotai strip. Notably, such projects are expected to draw business and leisure travelers, and provide a solid platform for growth. In fact, building resorts in Boston and Macau will help Wynn Resorts capitalize on strong consumer spending trend in the region.

The inauguration of the world's longest sea-crossing bridge and tunnel in the prior year, which connects Macau to Hong Kong as well as mainland China's Pearl River Delta, is likely to prove beneficial to the casino operator. The company stated that it is redesigning Wynn Macau, the entirety of the original casino, and remodeling the Encore Tower Suites.

The company is also focusing in domestic expansion. In order to enhance performance in Las Vegas, the company has remodeled rooms at its properties and the baccarat pit. Though tourism in Las Vegas has not yet reached the pre-recession level, the company is on its way to recovery. The number of visits has been improving every year.

Hurdles to Cross

The U.S.-China trade war has been hurting gambling stocks, and Wynn Resorts has been no exception to the trend. Meanwhile, the flagging China property price has adversely impacted the high-end VIP segment. However, Wynn Resorts has been offering various promotional allowances and undertaking initiatives to attract gambling patrons in Macao.

Nevertheless, Wynn Resorts’ heavy reliance on debt financing remains a concern. At the end of third-quarter 2019, total outstanding debt amounted to $9.54 billion, which includes $4.06 billion of Macau-related debt, $3.11 billion of Wynn Las Vegas debt, $1.76 billion of Wynn Resorts Finance debt, and $611 million of debt held by the retail joint venture.

Zacks Rank & Key Picks

Wynn Resorts has a Zacks Rank #3 (Hold). Some better-ranked stocks worth considering in the same space include Boyd Gaming Corporation BYD, Churchill Downs Incorporated CHDN and Penn National Gaming, Inc. PENN. All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Boyd Gaming has an impressive long-term earnings growth rate of 13.8%.

Churchill Downs has reported better-than-expected earnings in three of the trailing four quarters by 17.9%, on average.

Penn National Gaming has an impressive long-term earnings growth rate of 33%.

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