3 Things to Consider About Wynn Resorts
Serious allegations have been levied against Steve Wynn; for now we maintain our fair value estimate and moat rating on the casino resorts operator.
We cannot speculate on what will transpire concerning the serious allegations against Steve Wynn, as reported by The Wall Street Journal on Jan. 26, and we thus maintain our $166 fair value estimate, brand intangible narrow moat rating, and Standard stewardship rating. But there are three factors investors might consider regarding the potential impact on Wynn Resorts’ (WYNN) share price and moat thesis should its founder step aside: design quality, license sustainability, and brand reputation.
We see negligible risk surrounding design quality, despite Steve Wynn being integral in the high quality and detailed design of the company’s resorts. First, although we model upcoming openings in Boston (scheduled to open mid-2019) and Vegas’ Paradise Park (full completion modeled in 2020), these projects have already been through the design phase. Additionally, the bench of three design executives, a president that has been with the company since 2002, and a head of Macau that has been there since operations commenced in the region (2007) gives us confidence that resort quality would not be at risk with future development opportunities (Japan, Vegas West, and Macau Palace phase 2).
We see an unlikely risk that the company will ever lose any of its gaming licenses. Based on 10-K language, we believe gaming regulators have the right to investigate individuals with meaningful share ownership to determine whether they are suitable to be involved with any license (Massachusetts has already announced a review). In our view, any corporate board would look to remove any individual that threatened shareholder value, leading to low risk of the firm losing any of its gaming licenses.
Wynn Resort’s brand could be affected, although we cannot speculate on where these allegations lead, and determining any potential impact on demand is difficult to ascertain. Purely as an exercise, discounting our sales forecast by 5% this year and next would reduce our fair value estimate by around 5%.
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Dan Wasiolek does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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