Wynn stock (NASDAQ:WYNN) has declined by almost 32% year-to-date, considerably underperforming the S&P 500, which remains down by about 20% over the same period. There are multiple factors that have been weighing the stock down. Firstly, there are renewed worries about the travel and leisure sector, as the U.S. economy faces headwinds with inflation touching 41-year highs. This is causing the Federal Reserve to get more aggressive with its interest rate hikes, carrying out a 0.75 percentage point hike in June, its largest since 1994, with more similar hikes on the horizon. Consumer confidence is also declining, as surging energy, grocery, and housing prices eat into household budgets, and this could impact companies that depend on discretionary spending.
Moreover, Wynn’s heavy exposure to the Macau market (about 70% of revenue pre-pandemic) is also proving a major headwind. The resurgence of Covid cases in Mainland China has resulted in lockdowns and travel restrictions, which have severely dented tourism and gambling activity in the region in recent months. Wynn’s Q1 2022 revenues also came in lower than expected at $953.3 million as strong results at its Las Vegas and Boston properties were offset by a weak performance in Macau. More recently, Macau has also seen what is likely the largest outbreak in Covid-19 cases in close to a year and this could have a pronounced impact on gaming revenue in the region in the short term. The uncertainties regarding the Gaming Law amendments and the license re-tendering process in Macau have also weighed on companies such as Wynn.
While we have reduced our price estimate for Wynn to about $82 per share to account for near-term headwinds, we still remain bullish on the stock, with our price estimate standing at about 40% ahead of the current market price. The Covid-19-related headwinds are likely only temporary. Cases should eventually decline in the region and we could see activity pick up meaningfully driven by pent-up demand for gaming, just as we’ve seen in Las Vegas. The regulatory overhang is also likely to ease in the coming months. Macau’s new gaming law bill was approved by the city’s legislature two weeks ago. Gaming taxes have been raised only very marginally from 39% to 40%, with licenses likely to be given for 10 years. While the city’s six current gaming operators, including Wynn, are expected to have their licenses extended, regulations are expected to be more onerous. That being said, this is probably priced in, given that Wynn stock has declined by over 60% from its pre-Covid highs.
See our analysis on Wynn Resorts Valuation: Is Wynn Stock Expensive Or Cheap? for more details on Wynn’s valuation and how it compares with peers. For more information on Wynn’s business model and revenue trends, check out our dashboard on Wynn Resorts Revenue: How Wynn Makes Money.
WYNN stock has seen a fall of 32% this year, but can it drop further? See how low Wynn stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.
|S&P 500 Return||1%||-20%||71%|
|Trefis Multi-Strategy Portfolio||3%||-25%||200%|
 Month-to-date and year-to-date as of 7/2/2022
 Cumulative total returns since the end of 2016