Jay Dee Clayton executive VP-operations of Wynn Macau poses next to the company’s logo in Macau, 22 … [+]
AFP via Getty Images
After the two-week shutdown in early February, the total visitation and gross gaming revenues in Macau have plunged by more than 90%. The Macau government expects its total tax collection to drop by 50% in 2020, hinting towards a recovery in Q4. However, Trefis believes that Wynn Resorts (NASDAQ: WYNN) has an attractive valuation due to the company’s strong liquidity position and high exposure to the growing Macau Gaming Market. Wynn Resorts is a leading developer of integrated resorts, with two casino properties in Macau, one in Boston and one in Las Vegas. Despite the company’s origins in the U.S., it generates a bulk of its revenues from Macau. In 2019, the protests in Hong Kong were a deterrent to the region’s travel & tourism industry. Still, these ongoing tensions might be a blessing-in-disguise for Macau because of the Chinese government’s plan to diversify Macau’s gaming-focused economy into a financial hub.
While the company’s Las Vegas and Boston properties have opened after state restrictions ended in May, Wynn Resorts’ Revenues are expected to shrink by 40% to $4 billion in 2020 from an overall decline in travel & tourism demand. However, the company’s operating profit margin is likely to benefit from a variable bottom-line. We discuss trends in the various components of Wynn Resorts’ Expenses over the years in a separate dashboard. Notably, the sharp decline in casino revenues will also reduce the company’s total expenses as gaming taxes account for 50% of the total operating expenses. We estimate Wynn Resorts’ valuation at $97 per share, as highlighted in our interactive dashboard analysis with detailed forecasts of revenues, margins, and valuation multiple.
Long Term Trends in Favor of Macau
- Since 2016, Macau Gaming Market has grown by 30% to $36.5 billion in 2019, driven by a 27% increase in visitation and a 57% growth in mass baccarat drop.
- In 2019, Macau’s gross gaming revenues observed a dip due to the government’s crackdown on the city’s junket business.
- Despite increased regulatory oversight and headwinds from the Hong Kong protests in 2019, the visitation in Macau increased by 10% due to the growing number of tourists from Mainland China.
- While the coronavirus pandemic has led to a 90% drop in visitation, we believe that Macau retains its attractiveness as a global tourism and gaming destination.
Economic Recovery Likely In Fourth Quarter, But Wynn Resorts Has Enough Liquidity To Confront A Severe Downturn
- Per its first-quarter SEC filing, the company has $2.8 billion of cash and cash equivalents along with $115 million of additional borrowing capacity. Also, the company has suspended dividends and postponed capital expenditure plans to preserve cash.
- Consistent with our revenue expectations, Wynn Resorts’ net margins are expected to slide into negative territory due to $600 million of annual depreciation costs and $400 million of interest expenses. Therefore, we value Wynn Resorts stock using an appropriate P/S multiple.
- Considering a P/S multiple of 2.6, $4 billion in total revenues, and 107 million shares outstanding, we estimate Wynn Resorts Valuation at $97 per share.
While we expect Wynn stock to do well over the coming months, things will be more difficult for its peer Las Vegas Sands. During the Great Recession, Las Vegas Sands stock hit a low of $2. Will it happen again? We explore the possibility in the interactive dashboard, How Did Las Vegas Sands Stock Fare During Coronavirus Crisis Compared to S&P 500?