Hotel Room Rate Outlook at WYNN’s Las Vegas Properties
Wynn Resorts (NASDAQ:WYNN) is a developer, owner and operator of destination casino resorts. It currently owns and operates the Wynn and Encore resort casinos in Las Vegas, as well as Wynn Macau and Encore in Macau. Competitors include Las Vegas Sands (NYSE:LVS), MGM Resorts International (NYSE:MGM), SJM (HKG:0880), Galaxy (HKG:0027) and Harrah’s among others.
We currently maintain a $118 price estimate for Wynn Resorts stock, roughly 10% below market price.
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Average Daily Hotel Room Rates at Wynn Las Vegas
Wynn Las Vegas is currently undergoing a $99 million renovation on its 2,700 hotel rooms and suites. [1] The average daily rate (ADR) for Wynn Las Vegas hotel rooms has declined over the past few years, from $288 in 2008 to roughly $203 in 2010. A primary culprit behind this trend was the economic recession and consequent decrease in consumer discretionary spending.
We anticipate a gradual recovery in Wynn Las Vegas hotel room ADR in the years ahead primarily due to economic recovery in the United States. As the U.S. economy stabilizes, consumer discretionary spending is likely to improve, sparking demand for luxuries like travel and entertainment.
However, rapid expansion of hotels and resorts in years past has caused an oversupply of hotel rooms at properties along the Las Vegas Strip. This could create a headwind to the anticipated recovery of hotel room ADRs. Expansion of gaming in other states also poses a threat. In 2010, for example, both Pennsylvania and Delaware legalized table games.
We also note that occupancy rates are often a more important metric to hotel operators than average daily rates, as guests that occupy the available rooms can then spend money on food and entertainment. High end resorts like Wynn Las Vegas and Las Vegas Sands decreased ADRs drastically during the recent economic recession to draw visitation.
Despite eroding profitability for Wynn’s Las Vegas operations, the company’s value has been bolstered by surging business at its resort casinos in Macau. Given these trends, we pose the following question…
What Percent of Wynn Resorts’ Stock Value Comes from its Las Vegas Operations?
A) 20%
B) 28%
C) 36%
D) 45%
Click a response above to see the answer.
See our full analysis and $118 price estimate for Wynn Resorts
Notes:- Las Vegas Sun: Wynn Las Vegas Gets $99 Million Upgrade After 5 Years, February 2011 [↩]