On the back of a fourth-quarter earnings report that was received in surprisingly positive fashion, Wynn Resorts (NASDAQ:WYNN) stock jumped 17.54 percent last week, but one analyst is urging caution with the shares.
In a note to clients, Roth Capital analyst David Bain reiterates a “neutral” rating on shares of the Encore operator with a $92 price target. That forecast is more than 27 percent below where Wynn stock closed last Friday and well below the consensus estimate of $108.50. Bain says the rating factors in longer-term Macau market potential balanced with a lofty valuation and company- and market-specific risks.
While bulls are likely to cite positive earnings before interest, taxes, depreciation and amortization (EBITDA) and forward month-over-month improvements, we remain neutral based on Macau risk factors and overall ‘back to calendar year (CY) 2019 levels’,” said Bain. “Street estimates continue being pushed out another year to CY23 from CY22 with multiple targets moving to capture 2023 estimates.”
Late last year, Macau operators, including Wynn, started posting break even EBITDA results. Among analysts and investors, that was taken as a sign that the world’s largest casino center could notch a material rebound starting in late 2021.
For Wynn Stock, Some Macau Positives, Risks
In the fourth quarter, Wynn posted break even EBITDA in Macau on revenue that was just 32 percent of that seen in the comparable period in 2019. Likewise, the operator trimmed daily expenses to $2.2 million from $3 million a year earlier.
On a conference call with analysts, Wynn CEO Matt Maddox said the company is bullish on Macau’s future and that growth will be sourced via premium mass market players — a bread-and-butter demographic for the operator. Near-term strength in the special administrative region (SAR) is essential for Wynn’s top and bottom lines because its US operations in Las Vegas and Boston remain hindered by coronavirus restrictions.
Roth Capital’s Bain said Wynn’s premium mass focus in Macau is a positive, but there remains overhang courtesy of the SAR’s looming license renewal process.
“We believe Wynn’s focus on premium is a positive as it targets the most profitable segment with initial recovery rates above others,” notes the analyst. “We — like everyone else — would like to look past concession renewals/declare them of little concern, but continue to believe US operators have at least some elevated risk not factored into stock multiples.”
Waiting on Vegas Recovery
While Macau is Wynn’s marquee market in any operating environment, it would be efficacious for the shares if Las Vegas perks up.
At Wynn and Encore on the Strip, room occupancy is 50 percent for Super Bowl weekend — the highest level in five months. However, as Maddox pointed out on the conference call, the company has a new convention center it hasn’t even used yet because of the pandemic.
On a related, Bain says there’s pent up demand for Las Vegas, but second half of 2021 estimates for a rebound are probably too ambitious at this stage.
The analyst says there’s a “relatively positive 2022 set up for Las Vegas.”
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