Wynn Headed For A Stronger Year But Palace Performance Could Swing Valuation

Wynn Resorts (NASDAQ: WYNN) had a good year in 2016 and we expect its businesses to improve further in 2017 driven by its new casino Wynn Palace, growth momentum in the Macau casino market and the strength of  Las Vegas gaming. Wynn has placed special emphasis on mass market gaming, along with alternative revenue sources, in order to reduce risks in Macau. As Macau accounts for more than 60% of Wynn’s overall revenues, the recent growth momentum of Macau gaming industry is likely to result in strong growth for Wynn in the region. The new casinos of LVS and MGM in Cotai strip present a threat to Wynn, as the success of MGM Cotai may result in customer churn for WYNN. MGM Cotai, which is scheduled to open in mid-2017, will be in a position to offer better discounts to customers as they have improved their operational efficiency in Macau and increased visitation will make their position stronger in the region.

Wynn Revenues and Margins To Improve In 2017

Macau’s gross gaming revenues (GGR) have been increasing since the second half of 2016, having grown 14.4% in November — the first double-digit growth in more than two years. While part of the growth can be attributed to the opening of new casinos of LVS and Wynn in Q3’16, double-digit growth in November clearly indicates the rebound of Macau casino industry. Wynn started off 2016 on a good note and was able to increase its overall revenues in the first nine months of 2016, despite the continued decline in Macau casino industry. We expect that Wynn businesses will improve further in 2017, given the improvement in Macau casino revenues in the later half of 2016. Wynn’s performance in Las Vegas strip was also impressive in 2016, given the recent fluctuation in gross gaming revenues of the region. This suggests continued growth for Wynn in the region.  We expect Wynn to continue to perform better in Las Vegas market, due to increased convention attendance, airline capacity and domestic gaming in the region. Additionally, no new casinos are coming in Las Vegas strip till 2019, which will ensure stable volumes for Wynn from its Las Vegas operations.

Additionally, Wynn has been changing the layout of floors, placing higher yielding games in more prominent locations, which has improved table utilization. Wynn has adapted itself to the changed environment and its new casino in Cotai strip is designed specifically for premium mass market business. This is evident from their nongambling attractions such as $100 million fountain show and $200 million in artworks at Wynn Palace. We believe that due to the above measures, Wynn’s EBITDA will continue to see improvement in 2017.

Wynn Palace Could Swing Wynn’s Valuation Both Ways

In its initial run, Wynn Palace hasn’t done well as those of its competitors. However, we remain optimistic about its performance in 2017 as Wynn Palace is designed to generate diversified revenues and is not just dependent on gambling operations. It features 1700 luxury rooms, Chinese artworks, air-conditioned gondolas circling a lake, and water fountain show synchronized to music. This is expected to increase Wynn’s non-gambling revenues, which accounted for just 11.2% of its revenues from Macau. This is in stark contrast to Wynn’s operations in Las Vegas, where non-gambling sources constitute nearly 65% of revenues. Additionally, it will get the license for another 50 tables in 2017 which is likely to boost company’s performance going forward. Thus we still remain optimistic about Wynn Palace.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis of Wynn Resorts

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap

More Trefis Research