Wynn 2019 EBITDA Estimates Trimmed, Analyst Doesn’t See Macau Dice Bouncing Favorably For Shares

Posted on: August 30, 2019, 02:51h. 

Last updated on: August 31, 2019, 12:31h.

Wynn Resorts, Ltd. (NASDAQ:WYNN) relies on Macau for a massive percentage of its revenue, and that dependence can be problematic for the stock when gaming activity in the Chinese territory slows.

Wynn is still highly dependent on Macau, and one analyst is trimming estimates as a result. (Image: Macau News)

August gross gaming revenue (GGR) figures for the Special Administrative Region have not yet been finalized. But some analysts already forecast a slowdown there because of bad weather and the lingering US/China trade spat. In turn, at least one analyst is paring his 2019 earnings before interest, taxes, depreciation and amortization (EBITDA) estimate on Wynn.

In a recent note, Union Gaming analyst John DeCree trimmed his 2019 Wynn Resorts EBITDA forecast to $1.89 billion from $1.94 billion, citing softness in Macau.

The outlook in Macau has become increasingly cloudy, with ongoing VIP softness, social unrest in Hong Kong, economic implications for the U.S.-China trade war, [and] incremental competition from regional Asian gaming markets,” said DeCree in the note.

DeCree made those remarks about six weeks after he reiterated a “buy” rating on Wynn stock, with a $150 price target.

Rough Month

In the second quarter, Macau accounted for 70 percent of Wynn’s revenue, making the stock vulnerable to heightened trade tensions between the US and China. Last year, China enjoyed a trade surplus of roughly $420 billion with the US, but data indicates President Trump’s tariff gambit has put some pressure on the world’s second-largest economy.

A recent reading of Chinese economic activity by Bloomberg Economics shows growth slowing there, which follows a report on industrial output that tumbled to a 17-year low. The specter of a Chinese slump is pressuring some other Asian nations whose citizens are among the visitors to Macau, including Hong Kong and South Korea.

Wynn stock is reflecting those fears. The shares tumbled 10.39 percent in August, the worst performance among the four largest US-based gaming companies, and a loss that was nearly double that of Las Vegas Sands (NYSE:LVS), the operator of five Macau properties.

Softness in major economies is seen as a drag on the all-important VIP market in Macau, a group Wynn already expressed struggles with. In the second quarter, the company said VIP turnover at Wynn Macau slid $9.28 billion from $13.93 billion in the year earlier period.

Other Efforts, Figures

DeCree, the Union Gaming analyst, forecast 2019 EBITDA for Wynn Macau of $661.3 million, and $784.6 million for Wynn Palace on the Cotai Peninsula.

Twenty analysts currently rate Wynn stock with 12 having “buy” or “outperform” marks on the shares. The average price forecast on the name is $138.60, well above Friday’s close of $110.15.

Wynn stock’s correlations to Macau put added emphasis on the company to appease Wall Street with a more diversified revenue mix, something it’s attempting to do with Encore Boston Harbor. In July, that venue’s first full month of operation, GGR there was nearly $48.6 million.