Wynn Resorts’ Q3 Earnings Will Likely Take A Massive Hit Amid Continued Weakness In Macau
Wynn Resorts (NASDAQ:WYNN) will report its Q3 2015 earnings on October 15th. [1] Overall Macau gaming revenues declined over 34% during the third quarter as players continued to stay away from the world’s largest gambling hub amid government’s anti-graft measures. Accordingly, Wynn’s top line will likely see a double-digit drop as compared to the prior year period. The past quarter has been rough for Wynn and the stock took a nasty toll of around 50%. Much of this fall came last month due to concerns on a liquidity crunch for casino players, amid junket issues. However, of late, there have been few positive developments in Macau, which points towards a stronger Q4. Casino stocks saw a sharp rally in the first week of October amid hopes of stimulus from Beijing and strong growth in tourist arrivals. This, in turn, fueled Macau’s gross gaming revenues for the first 11 days of October. [2] These developments do point towards a recovery sooner than later.
Looking at Q3, we’ll be closely watching for Wynn’s reported Macau EBITDA margins. In Q2, the margins came in at 28%, lower than 32% seen in the prior year period. [3] If Q3 margins also shrink, it will take a toll on the bottom line, and it may not go well with the investors.
The primary reason for this decline in Macau is low gaming volumes amid government’s anti-graft measures that were rolled out last year. However, even Beijing is now willing to provide stimulus to various sectors as China’s economic growth rate is slowing down below the government’s desired range. [4] This is the reason why casino stocks suddenly picked up steam in first week of October. Looking at Wynn, its stock has surged over 30% so far in October.
- With Macau Business Picking Up Pace, Will Wynn Stock Recover To Pre-Inflation Shock Highs Of $140?
- Will Wynn Stock Recover To Pre-Inflation Shock Highs Of $140?
- Can Wynn Stock Return To Its Pre-Inflation Shock Highs?
- What’s New With Wynn Stock?
- With Optimism About A Macau Recovery, Is Wynn Stock A Buy?
- What’s Happening With Wynn Stock?
Most of the weakness in Macau market is on VIP front while the mass-market gaming has comparatively been better. Wynn has been expanding its base in the mass-market segment for quite some time now. The segment revenues have grown from less than $500 million in 2009 to over $1 billion in 2014. This is positive for the company in the long run, given that the mass-market gaming offers higher margins, as it does not involve junket operators. Looking at VIP gaming, it will surely be hit hard in the upcoming quarterly results. But on the brighter side, non-gaming operations may do well and help offset some of the losses seen on the gaming front.
We currently estimate Wynn Resorts’ VIP gaming turnover (Rolling Chip Volume) to decline from $108 billion in 2014 to under $65 billion for 2015. Similarly, we expect mass market gaming drop (Non-rolling Chip Volume) to decline from $2.65 billion in 2014 to less than $2 billion in 2015. Looking forward, we estimate a pickup in revenues, primarily due to Wynn’s new Cotai resort, which will enhance its capacity in the region (see – Our Revised Price Estimate of $118 For Wynn Resorts).
- Trefis has a $118 price estimate for Wynn Resorts’ shares, translating into a $12 billion market cap. This is much above the market price of around $65 seen over the week.
- We estimate the company’s 2015 revenues to be around $4.60 billion for earnings per share of $3.91, as compared to $3.31, according to Reuters.
See our complete analysis of Wynn Resorts’ stock here
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Notes:- Wynn Resorts’ Press Release [↩]
- CASINO SHARES SURGE ON STRONGER-THAN-EXPECTED REVENUE, Macau Daily Times, Oct 14, 2015 [↩]
- Wynn Resorts’ SEC Filings [↩]
- Chinese Stocks in Hong Kong Rise on Stimulus, U.S. Rate Outlook, Bloomberg, Oct 5, 2015 [↩]