Will Wynn Stock Drive Strong Gains For Investors Post Q3 Results? - Forbes

Posted: 09 Nov 2020 12:00 AM PST

BRAZIL - 2020/07/04: In this photo illustration the Wynn Resorts logo seen displayed on a ... [+] smartphone. (Photo Illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images)

SOPA Images/LightRocket via Getty Images

The shares of Wynn Resorts (NASDAQ: WYNN) gained 56% from $90 in early 2017 to $140 in 2019, primarily supported by the company's strong exposure to the expanding Macau Gaming Market. While the lifting of restriction measures in the U.S. and the sports betting frenzy drove a rally in Penn National Gaming (NASDAQ: PENN) and Caesars Entertainment (NASDAQ: CZR), the shares of companies having a sizable presence in Macau including Las Vegas Sands (NYSE: LVS) and MGM Resorts (NYSE: MGM) have remained subdued. Wynn Resorts released its third quarter results recently and Trefis highlights the historical revenue and earnings trends in an interactive dashboard analysis Earnings Review: Wynn Reported Lukewarm Q3 Performance But Has A Strong Liquidity Position.

Macau Remains The Key Revenue Contributor

In February, Macau went into a 15-day shutdown to limit the spread of the coronavirus. However, the outbreak extended to other countries resulting in the WHO declaring it a pandemic. After observing a 90% (y-o-y) contraction in gross gaming revenues in February, the sluggish travel demand continues to weigh on Macau's gaming economy. Stringent travel restrictions and fear of repeated outbreaks are key factors limiting tourist visitations.

After the inauguration of Wynn Palace in 2016, Macau has remained the primary contributor to the company's revenues and earnings – resulting in the continued expansion of the stock's valuation multiple (P/E). The company's casino revenues from Macau have observed a 64% growth from $2.8 billion in 2016 to $4.6 billion in 2019. Also, Wynn Macau and Wynn Palace contribute 35% and 40% of the company's adjusted EBITDA, respectively.

Wynn's Strong Liquidity Position To Drive An Upside As Operational Metrics Turn Favorable

The company burned $800 million of cash during the first six months despite capex cuts and operational cost reductions. However, the $3.4 billion of available liquidity can support operating losses for more than a year in the current low demand environment. Thus, the company has a strong liquidity position to tide it over the crisis. An uptick in key operational metrics, namely table games drop and room occupancy rate, along with a favorable tourist visa policy between China and Macau, can trigger a sizable upside in the shares of Wynn Resorts.

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