Wynn Resorts EBITDA, Price Target Pared by Analyst Citing Softness Among Macau VIPs

Posted on: October 24, 2019, 03:03h. 

Last updated on: October 24, 2019, 04:08h.

Wynn Resorts Ltd. (NASDAQ:WYNN) reports third-quarter earnings on Nov. 6, and some analysts are bracing for the company to deliver less-than-impressive numbers in its Macau VIP segment.

One analyst is already telling investors to not expect much from Wynn’s third-quarter Macau numbers. (Image: Nikkei)

Citing expectations for softness among high end Macau gamblers during the July through September quarter, Stifel analyst Steven Wieczynski on Thursday trimmed his 2019, 2020, and 2021 earnings before interest, taxes, depreciation and amortization (EBITDA) estimates on the gaming company.

Those downward revisions work out to be approximately six percent per year, with Wieczynski noting that following Las Vegas Sands’ (NYSE:LVS) third-quarter report out Wednesday, there are enough data points available for investors to recalibrate expectations on Wynn.

While we believe WYNN shares could be stuck in neutral until we get more clarity around macro/political headwinds in China, at this point we still see value in the name for the patient investor who can stomach near-term volatility,” said the analyst in a note obtained by Casino.org.

The analyst reduced his price target on the gaming stock to $139 from $150. But the lower forecast still implies upside of about 22 percent from current levels. That $139 estimate is still above the consensus target of $134.67.

Depending On Macau

The operator of the Wynn Macau and Wynn Palace, Wynn Resorts is highly dependent on the Special Administrative Region (SAR) for a major chunk of its revenue. In the second quarter, the company’s China business accounted for 70% of turnover. That’s well above 64.9 percent of revenue derived from Macau in the third quarter for rival Sands.

Investors should already be primed for a glum third quarter of Macau results from Wynn, because the company already warned about softness in its July and August numbers, directly citing the Chinese region as the reason.

Stopping short of making comments on the entire quarter, last month Wynn forecast total operating revenue of $1.01 billion to $1.12 billion for the two months ended Aug. 31, and adjusted property EBITDA of $225 million to $248 million. The year earlier numbers were $1.15 billion and $339.4 million, respectively.

“Given what LVS indicated last night, VIP/premium mass trends and the anticipated challenges created by unrest in Hong Kong and an increasingly uncertain China macro picture lead us to believe the headwinds facing these segments are not likely to dissipate any time soon,” said Wieczynski.

Transitory Challenges

If there’s a silver lining in Wieczynski’s downward revisions on Wynn, it’s that the lower estimates are easier for the company to achieve, if not beat.

Additionally, the analyst notes the gaming operator’s challenges are not permanent, and that the stock remains a compelling long-term bet with the help of new investments in Macau.

“We view the majority of the challenges facing the company and the stock as transitory in nature, and believe they represent a case of short-term pain with significant long-term gain potential,” said Wieczynski. “At Wynn Macau, we believe the planned $125M reinvestment should better position the property for the long term, and should begin to provide an immediate payback as early as 2020.”