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Wynn Resorts Ltd WYNN

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Narrow-Moat Wynn’s Macao Demand Beginning to Rebound, as Easing Visa Restrictions Start to Take Hold

Dan Wasiolek Senior Equity Analyst

Analyst Note

| Dan Wasiolek |

While Wynn’s third-quarter sales in Macao (76% of 2019 EBITDA) were down 94%, near the 93% decline posted by the gaming industry, we expect the region to rebound in the final months of 2020 and recover to around 87% of 2019 levels in 2021, as easing visa and coronavirus test restrictions take hold. In fact, narrow-moat Wynn noted that its October and November to date traffic volume was around 30% of pre-COVID-19 levels, up from the 10% mark during the third quarter. Also, mainland China (about 70% of 2019 Macao traffic) domestic travel traffic reached 79% of 2019 levels during the Golden Week holiday (Oct. 1-8), which we think provides evidence that the desire to travel is intact once more easily permitted. As a result, we estimate that Macao industry revenue can return to 35% of year-ago levels in the fourth quarter, which should allow operators to generate positive cash flow. Still we see 2020 finishing down 78%, versus our mid-50% decline estimated in July. Our lower near-term Macao demand forecast is expected to reduce our Wynn $110 fair value estimate around a high-single-digit percentage, leaving shares undervalued.

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Company Profile

Business Description

Wynn Resorts operates luxury casinos and resorts. The company was founded in 2002 by Steve Wynn, the former CEO. The company operates four megaresorts: Wynn Macau and Encore in Macao and Wynn Las Vegas and Encore in Las Vegas. Cotai Palace opened in August 2016 in Macao, Encore Boston Harbor in Massachusetts opened June 2019, and various Vegas projects are currently under development. Additionally, the company expects to begin construction on a new building next to its existing Macau Palace resort in late 2021, which we forecast to open in 2025. The company gets 76% and 24% of its EBITDA from Macao and Las Vegas, respectively.

3131 Las Vegas Boulevard South
Las Vegas, NV, 89109
T +1 702 770-7555
Sector Consumer Cyclical
Industry Resorts & Casinos
Most Recent Earnings Sep 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type Distressed
Employees 30,200