The big concern for Wynn is that its fortunes depend heavily on Macau, which has been under tight travel restrictions due to the pandemic.
Anthony Wallace/AFP/Getty Images
Many casino stocks have rebounded this year as a play on the post-Covid reopening.
Not Wynn Resorts (ticker: WYNN).
The stock, which traded a little above $200 in 2018, was recently at $101 and change, down about 12% this year alone as of Aug. 26.
In contrast, MGM Resorts International (MGM) and Caesars Entertainment (CZR), both of which offer more direct exposure to the Las Vegas Strip and to U.S. regional markets, have gained 33% and 34% in 2021, respectively.
The big concern for Wynn is that its fortunes depend heavily on Macau, which has been under tight travel restrictions due to the pandemic. In 2019, for example, about three-quarters of the company’s $1.8 billion of adjusted property earnings before interest, taxes, depreciation and amortization, or Ebitda, came from that market in China.
Wynn also has smaller operations in Las Vegas, where it is based, and Boston, but Macau is a key driver of investor sentiment.
One contrarian on Wynn is Stephanie Link, chief investment strategist at Hightower, a financial advisory firm. She runs the large-cap portion of a portfolio used by the firm’s advisors. Link believes the Wynn’s various challenges are cyclical, not secular.
“I’m always trying to find things that people hate,” says Link. “That’s the way you make money. You buy low and you sell high.”
The stock, she adds, “has been painful to own because it’s taking longer than I had expected” to recover.
But she’s hanging in there, encouraged by the company’s second-quarter results released early this month. She also cites the company’s digital gaming and sports betting enterprise, in which it owns a majority stake, as a plus for the company’s prospects.
As for its bricks-and-mortar assets, Wynn is known for its prowess in luxury properties, including those on the Las Vegas Strip. That includes Wynn Las Vegas and Encore at Wynn Las Vegas. “Whenever I can I can get the No. 1 company truly on sale, that is worth waiting for and having patience,” Link says.
By Link’s calculations, Wynn trades at 10.4 times enterprise value (essentially net debt plus market capitalization) to 2022 estimated Ebitda. It’s not super cheap but reasonable for a company that’s been showing signs of improvement, in her view.
Wynn has had a streak of consecutive quarterly earnings losses during the pandemic, most recently at an adjusted $1.12 a share in the second quarter. But that was better than the first quarter’ loss of $2.41 a share and the second quarter of 2020’s loss of $6.14 a share.
At the same time, operating revenue, while still not close to prepandemic levels, has been improving. It was nearly $1 billion in the second quarter, up from $726 million in the previous three-month period.
“You are getting incremental less-bad” financial results, says Link. “You make money on less bad.”
Ebitda, which financial analysts pay close attention to, has been rebounding as well. In Macau adjusted property Ebitda totaled $67.6 million in the second quarter, compared with a loss of $193.6 million a year earlier. During the company’s second-quarter earnings call with analysts on Aug. 4, Wynn CFO Scott Billings ascribed the better Macau result in part to “solid cost controls.”
The company has targeted $150 million of annual ongoing cost savings. “They are cutting costs dramatically as they should, because they have to,” says Link. “But they are doing it methodically [and] it’s helping results.”
Meanwhile, Las Vegas has been showing marked improvement, helped by strong leisure traffic. Las Vegas adjusted property Ebitda came in at $133.2 million, a big swing from minus $75.6 million in 2020’s second quarter.
The Delta variant has been a concern as the summer has gone on, but Las Vegas hotel occupancy numbers in July were pretty solid, according to the Las Vegas Convention and Visitors Authority.
Total occupancy was 79.4%, up from 75.9% in June. Weekend occupancy, however, dropped to 88.1% from 89.4% in June.
Perhaps the greatest uncertainty for the stock–and for other casino operators as well—is the Chinese government: Wynn’s concession agreement with the Macau government is up for renewal next year. The current agreement ends next June.
Link, however, takes comfort that a Wynn competitor, Las Vegas Sands (LVS), is making a similar bet on Macau—in that case by agreeing earlier this year to sell the Venetian, an iconic Strip property, and its other Las Vegas real estate to Vici Properties (VICI) for $6.25 billion.
“Las Vegas Sands is doubling down on Macau,” says Link. “If they didn’t think it was a huge—and the biggest—market to go after, they wouldn’t do such a thing.”
As for Wynn’s stock, she says, the market is “Discounting so much bad that I think the risk-reward is really attractive.”
She thinks the stock is worth at least $140, some 40% above its recent price.
Write to Lawrence C. Strauss at [email protected]
