Wynn’s Shares Look Considerably Undervalued Despite Expected Macau Headwinds This Year

by Trefis Team
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Wynn Resorts
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Wynn Resorts (NASDAQ: WYNN) has seen its stock tumble more than 20% over the last month primarily due to concerns about the impact of the ongoing U.S.-China trade war on the company’s extremely profitable Macau operations. While the notable reduction in Macau revenues for Q1 point to near-term headwinds for the casino giant, we believe that investor concerns are overblown. Per Trefis estimates, Wynn’s shares are very undervalued and have a fair value of $143 per share. We detail our views in the interactive dashboard: How Has Wynn Resorts Fared In Recent Quarters, And What’s The Outlook For Full-Year 2019? You can modify key revenue and expense forecasts for the company on the dashboard and observe the impact on its stock price. Additionally, you can find more of our Consumer Discretionary sector data here.

A Quick Look at Wynn Resorts’ Revenue Sources

Wynn reported $7.7 billion in Total Revenues for full-year 2018. This included four revenue streams:

  • Casino: $5.5 billion in FY2018 (72% of Total Revenues). This segment includes income from regulated gambling activities at Wynn properties. Macau and Las Vegas properties contribute 90% and 10% of the casino revenues, respectively.
  • Rooms: $843 million in FY2018 (11% of Total Revenues). This segment includes income from visitors/tourists who lodge in Wynn properties. Macau and Las Vegas properties contribute 35% and 65% of the room revenues, respectively.
  • Food and Beverage: $867 million in FY2018 (11% of Total Revenues). This segment includes income from restaurants at Wynn properties. Macau and Las Vegas properties contribute 25% and 75% of the Food and Beverage revenues, respectively.
  • Entertainment and Retail: $491 million in FY2018 (6% of Total Revenues). This segment includes income from retail stores at Wynn properties, per different agreements. Macau and Las Vegas properties contribute 54% and 46% of the Entertainment and Retail revenues, respectively.

Reasons for Our Reduction In Price Estimate From $150 to $143

  • The Macau Gaming revenues declined in the first quarter with a slight uptick in May. Macau observed revenue growth in the high-teens the last two years and this year it has been plagued by Chinese regulatory crackdown on foreign currency transactions and smoking restrictions in Casinos.
  • Since the new regulations increase the Chinese government’s oversight in Macau, VIP Gaming Revenues have been hit hard with Wynn Macau and Wynn Palace reporting a 40% and 17% decline of VIP turnover in Q1, respectively. For the full year, we expect VIP turnover to decline by 10% and as the regulations get clearer, we expect VIP gaming to increase at a modest pace over coming years.
  • In the recent quarter, the mass market segment observed a 7% and 2.2% increase in table drop at Wynn Palace and Wynn Macau, respectively. For the full year, we expect this segment to grow by 10% and continue at the same pace over the rest of our forecast period, supported by strong growth in the number of Chinese tourists to Macau.
  • The three American concessionaires, Wynn Resorts, Las Vegas Sands, and MGM Resorts together have a 40% share of Macau’s gaming revenues. While we believe that the ongoing U.S.-China trade dispute is unlikely to affect the American companies too much in the near term, it could significantly impact Macau’s popularity over the long run.

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