How Are Wynn Resorts’ Domestic Casino Operations Trending?

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Wynn Resorts‘ (NASDAQ:WYNN) domestic casino operations have been trending well over the past few years led by a better macro-economic environment in the U.S. However, gaming at the Las Vegas Strip has seen uneven trends in the recent past and gross revenues have been hovering around $6 billion for the past few years. Despite the challenging environment, Wynn has managed to grow its gaming revenues. The casino operator has positioned itself as a premium brand resort for sophisticated visitors and this aids its casino as well as non-casino ventures such as hotel and entertainment. We don’t expect any significant change in the overall gaming environmnet in Las Vegas in the coming years as other states are also legalizing casinos and Macau has become more a popular gaming destination with gross revenues seven times that of the Strip. However, in the long run, we believe Wynn’s new casino project in Everett , Massachusetts will significantly boost its domestic gaming operations. In this note, we discuss the trends in Wynn’s domestic casino operations, the forecasts we derive for them, and the factors that can spur growth for the company.

We estimate gross revenues of over $5 billion for Wynn Resorts in 2015, with EPS of $4.38, which is at the high end of the market consensus of $2.99-$4.39 compiled by Thomson Reuters. We currently have a $139 price estimate for Wynn Resorts, which is around 40% ahead of the current market price. It must be noted that the casino stocks are in a downturn amid the uncertainties pertaining to Macau gaming and Wynn’s stock has plunged over 25% in the past three months.

See our complete analysis of Wynn Resorts’ stock here

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How Are Wynn’s Domestic Casino Operations Trending?

Gaming trends at the Las Vegas Strip have been uneven in the recent past as it saw an 8% uptick in gaming revenues for the month of April. However, looking at the first four months of 2015, revenues are up only 2%. [1] The data for May is not yet released but it will be a difficult comparison to the prior year period, which benefited from an 86% surge in baccarat, which in turn led to a 17% jump in gaming revenues at the Strip. However, the casinos may benefit from increased travel last month due to the Pacquiao-Mayweather fight in Las Vegas.

We estimate that the domestic casino operations account for over 10% of Wynn’s stock price. The company offers approximately 230 table games and around 1,850 slot machines at the Las Vegas Strip. [2] Table games include blackjack, baccarat, craps, and roulette, among others. The casino earns revenues on the hold over the amount of money being wagered at the gaming tables. The company’s expected table games win percentage in Las Vegas is 21% to 24%. [2]

The overall domestic casino revenues have grown at an average annual rate of 7% since 2010, and the figure stood at $690 million in 2014. We expect this uptrend to continue in the coming years primarily driven by the Everett casino project and a better macroeconomic environment, which will fuel disposable personal income. The U.S. per capita disposable income is expected to grow from $37,410 in 2014 to $44,521 in 2021, according to a research by IBISWorld. [3] As the U.S. economy recovers and per capita disposable income increases, consumer spending on leisure, including gaming and entertainment, will also rise. Furthermore, the Everett project will be operational by late 2017 and it will significantly boost the company’s domestic operations. In light of the above factors, we expect Wynn’s casino revenues to continue to grow and be north of $1.25 billion by the end of our forecast period. An estimated EBITDA margin of 33% will translate into EBITDA of $415 million, representing 12% of company-wide EBITDA by 2021.

Everett Casino Will Fuel This Growth

We believe that much of this growth will be fueled by the Everett casino project. The resort will comprise of a 500-room hotel, 140,000 square feet of retail space, various dining options, 150 table games and 3,000 slot machines. It makes sense for Wynn to expand its operations in other domestic markets. The legalization of gaming in other U.S. states and the strong growth of Macau have adversely affected Las Vegas’ gaming industry and the rebound after recession has been slower. Looking at Massachusetts, it is an important location as it is the third richest state in the U.S. with a per capita income that is $7,695 higher than the average U.S. per capita income. Boston is the largest city in Massachusetts and it is well connected with other major cities in the state and region. While Wynn will benefit from the casino operations in the region, the new resort will also be a large source of non-gaming revenues driven by the hotels, retail, food & beverage, entertainment and other activities—a trend seen in other casino properties in the U.S.

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Notes:
  1. Strip’s best April since ‘08 helps reverse statewide gaming slide, Las Vegas Review Journal, May 29, 2015 []
  2. Wynn Resorts’ SEC Filings [] []
  3. Business Environment Report – Per capita disposable income, IBISWorld, September 2014 []