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Wynn Resorts (WYNN) Up 24% in 6 Months: Will Growth Continue?

Zacks Equity Research

Wynn Resorts, Limited WYNN is riding high on its solid top-line performance, focus on non-gaming revenues and strength in domestic market. As a result, the stock has gained 23.8% in the past six months compared with the industry’s 19.4% growth. However, dismal performance by Wynn Macau in first-quarter 2019 has been a major concern. Let’s delve deeper.

Hidden Catalysts

Wynn Resorts’ reported first-quarter 2019 financial numbers, wherein both earnings and revenues surpassed the Zacks Consensus Estimate. While the bottom line outpaced the consensus mark after missing in the preceding three quarters, revenues beat the same for the third consecutive quarter. Adjusted earnings in the quarter under review came in at $1.61 per share, exceeding the consensus mark of $1.59. Revenues totaled $1,651.5 million, which surpassed the consensus estimate of $1,642 million.

In order to boost performance in Las Vegas, the company has remodeled rooms at its properties and the baccarat pit. Even though tourism in Las Vegas has not yet reached the pre-recession level, Wynn Resorts is on its way to recovery. Notably, the number of visits has been increasing every year. With the improving job scenario and steady gas prices, the consumer spending environment in the domestic markets is improving. Backed by the optimism surrounding tourism in Las Vegas and increasing visitation pattern, revenues are likely to grow. Moreover, the company’s casino resort, expected to open in Massachusetts in 2019, will strengthen its presence in the U.S. market.

 

Meanwhile, in Las Vegas, the company is working on two new restaurant concepts that are expected to make significant additions to the non-gaming business. Not only this, Wynn Resorts plans to open new retail and a convention center in Las Vegas in the next 12-18 months.

Concerns

Despite reporting better-than-expected results in first-quarter 2019, investor sentiments were hurt due to dismal Wynn Macau performance. Wynn Macau revenues decreased 15.3% year over year to $523.9 million in the first quarter due to decline in casino revenues. Notably, casino revenues in the reported quarter decreased 16.5% to $450.2 million. Also, table games turnover in the VIP segment declined 40.3% to $10.19 billion. Macau’s dismal performance is likely to continue as the company continues to renovate rooms. Management stated that 80 to 100 rooms are out of service at Encore due to renovations.

Further, Wynn Resorts’ heavy reliance on debt financing remains a concern. At the end of first-quarter 2019, total outstanding debt amounted to $9.17 billion, including $3.10 billion of Wynn Las Vegas related debt, $3.73 billion of Macau debt and $983 million of Wynn America debt. Moreover, the company might fail to finance its upcoming projects due to a higher debt burden. Also, any downturn in the macroeconomic and credit market conditions is likely to make it difficult for the company to pay or refinance debts going ahead.

Zacks Rank & Key Pick

Wynn Resorts, which shares space with Las Vegas Sands LVS and Caesars Entertainment Corporation CZR, currently carries a Zacks Rank #3 (Hold). A better-ranked stock worth considering in the same space is Century Casinos, Inc. CNTY carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Century Casinos has an impressive long-term earnings growth rate of 25%.

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Century Casinos, Inc. (CNTY) : Free Stock Analysis Report
 
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