Party Not Over For Wynn Stock?

The shares of Wynn Resorts (NASADAQ: WYNN), a leading developer of integrated resorts with properties in Macau, Boston, and Las Vegas, nearly touched pre-Covid levels in December as WynnBET, the company’s sports betting application, was launched in multiple states. The sports betting and iGaming industry is projected to have the potential to eventually reach $40 billion in the U.S. and $70 billion globally. Thus, multiple online betting platforms and the commercial casino operators are eyeing a sizable market share. Despite a slump in travel demand and discretionary spending, Trefis believes that Wynn stock has room for more growth largely due to its strong liquidity position and a high level of variable operating expenses. Casino expenses, which account for 50% of the total operating costs, primarily include state-levied taxes on total table games drop and slot handle. 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 66% 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% during the same period 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 the 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
• Since late 2020: Weak quarterly results, but continued improvement in demand and progress with vaccine development buoy market sentiment

Going by the historical performance and the company’s strong presence in Macau, we believe that the stock can completely recover to pre-covid levels supported by a strong cash position.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams