Wynn Stock Continues To Defy The Odds

The shares of Wynn Resorts (NASDAQ: WYNN) have been on a bull run since the beginning of this month even as the travel and tourism industry came to a grinding halt due to the pandemic. The company took a string of measures in the second quarter to preserve its cash reserves including cutting capital expenses, suspending dividends, and trimming administrative expenses. Per Q3 filings, Wynn reported $3.5 billion of available liquidity which can support operating losses for more than a year. Thus, we believe that the stock can achieve pre-crisis levels with the initiation of mass vaccination and a gradual recovery in the Macau Gaming Market. We compare Wynn Resorts’ stock performance during the current crisis with that during the 2008 recession in an interactive dashboard analysis.

Timeline of 2020 Crisis So Far:

• 12/12/2019: Coronavirus cases first reported in China
• 1/31/2020: WHO declares a global health emergency.
• 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
• 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
• From 3/24/2020: S&P 500 recovers 60% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.

In contrast, here’s how WYNN and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

• 10/1/2007: Approximate pre-crisis peak in S&P 500 index
• 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
• 3/1/2009: Approximate bottoming out of S&P 500 index
• 1/1/2010: Initial recovery to levels before accelerated decline (around 9/1/2008)

Wynn Resorts vs S&P 500 Performance Over 2007-08 Financial Crisis

WYNN stock declined from levels of around $164 in September 2007 (pre-crisis peak) to levels of around $21 in March 2009 (as the markets bottomed out), implying WYNN stock lost 87% from its approximate pre-crisis peak. It recovered post the 2008 crisis to levels of about $58 in early 2010 – rising by 178% between March 2009 and January 2010. In comparison, the S&P 500 Index first fell 51% in the wake of the recession before recovering 48% by January 2010.

Wynn Resorts’ Fundamentals in Recent Years Look Strong

Wynn Resorts’ Revenues grew by 9% from $6 billion in 2017 to $6.6 billion in 2019, primarily driven by strong growth in Macau and a new property in Boston. However, the company’s operating margins declined from 17% to 13% due to high depreciation charges and pre-opening expenses. Thus, the EPS slipped from $7.32 in 2017 to $1.15 in 2019. The company’s revenues for the first nine months of 2020 were down by 71% compared to prior year and operating cash outflow widened to $781 million. However, the $3.5 billion of available liquidity can support operating losses for more than a year in the current low demand environment.

CONCLUSION

Phases of Covid-19 crisis:

• Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
• Late-March 2020 onward: Social distancing measures + lockdowns
• April 2020: Fed stimulus suppresses near-term survival anxiety
• May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
• July-November 2020: Weak Q2 and Q3 results, but continued improvement in demand and progress with vaccine development buoy market sentiment

Going by the historical performance and in view of a recovery in Macau, we believe that the stock can completely recover to pre-Covid levels supported by a strong cash position.

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