Wynn Resorts Ltd. (WYNN) develops and operates casino resorts in Macau and Las Vegas, notes John Staszak, an analyst with Argus Research, a leading independent Wall Street research firm.
Wynn’s Macau operations include just over 1,000 hotel rooms, nearly 500 table games, and 835 slot machines. Its Las Vegas operations consist of 240 table games, 2,200 slot machines, and 4,750 hotel rooms and suites. It also owns the Encore Boston Harbor Hotel and Casino.
On March 8, Wynn received approval from the Virginia Lottery to operate its online sports betting app, WynnBET. Virginia is the tenth state to approve Wynn’s online sports betting platform.
Our upgrade on Wynn Resorts to "buy" from "hold" assumes a recovery in the Las Vegas business and growth in Boston, driven by the rollout of coronavirus vaccines and increased leisure travel.
In addition, we expect Wynn to benefit from a recovery in Macau, helped by its focus on the premium mass and luxury markets, and from the launch of its iGaming/sports betting platform in 10 states.
Reflecting prospects for growth in Boston and recovery in Las Vegas and Macau, we are narrowing our 2021 loss estimate to $2.70 per share from $2.80. We are also raising our 2022 EPS estimate to $2.00 from $1.85. Our long-term earnings growth rate forecast remains 12%.
To improve liquidity, WYNN is cutting costs, drawing on its line of credit, and issuing debt and equity. As a result, we think it will have enough cash to operate until the end of 3Q21 even amid modest revenue.
Following a 42% drop in 1Q20 revenue, WYNN suspended its dividend. Given prospects for losses in 2021, we do not expect it to reinstate the dividend in 2021. In 2022, we project an annual dividend of $1.00 per share as the company returns to profitability.
On February 6, 2019, company founder and CEO Steve Wynn resigned and was succeeded by Matt Maddox, the president of Wynn Resorts. We have confidence in Wynn’s management team, particularly Linda Chen in Macau, who has been president of Wynn International since January 2005.
Risks to our estimates include the uncertain long-term impact of the pandemic on the company’s operations, as well as potential new restrictions on the gaming industry by the Chinese government.
In addition, WYNN competes against the much larger Las Vegas Sands in both Macau and Las Vegas. This competition could lead to lower margins and the loss of market share.
WYNN is trading at a high 66-times our 2022 EPS estimate. However, we believe that the stock merits an upgrade based on prospects for continued coronavirus vaccinations, increased leisure travel, the easing of restrictions in China, and growth at the company’s Encore Boston property. Our new target price is $160, implying a potential return of 22% from current levels.
