Wynn Whimpers Following Goldman Downgrade, Bank Sees ‘Limited Upside’

Posted on: September 8, 2020, 10:31h. 

Last updated on: September 8, 2020, 12:10h.

Shares of Wynn Resorts (NASDAQ:WYNN) are lower by four percent in midday trading Tuesday. That’s after Goldman Sachs lowered its rating on the gaming company to “neutral” from “buy,” while removing the stock from its prestigious Conviction Buy List.

Wynn Palace
Wynn Palace in Macau. Goldman Sachs downgraded the stock today, citing weakness in the VIP segment. (Image: CNBC)

Predictably, Goldman cites Macau as one of the primary reasons for its downgrade of Wynn. The Chinese territory is the operator’s largest market and, in a normal operating environment, accounts for two-thirds or more of the firm’s revenue in any given quarter.

Wynn (parent company) holds outsized exposure to Wynn Macau, and after revising our forecasts to embed softer VIP in 2021, we find limited upside, given the stock’s recent run,” said Goldman analyst Stephen Grambling in a note to clients.

Last month, Wynn stock jumped 21 percent while the S&P 500 climbed six percent. Much of the August bullishness in shares of Macau operators was derived from positive news on the travel front. In the middle of the month, the city of Zhuhai in Guangdong province started reissuing tourist visas, followed by the rest of the region on Aug. 26.

VIP Commentary

Goldman isn’t enthusiastic about the state of Macau’s VIP market. The concern is relevant regarding Wynn because the operator is one of the concessionaires in the special administrative region (SAR) most dependent on a higher-end clientele.

As such, we downgrade WYNN to Neutral from Buy and remove it from our Conviction List, with a 12-month target price of $95 (vs $96 prior),” writes Grambling.

However, there are some signs of improvement that could benefit Wynn. Data points indicate the September contraction in Macau gross gaming revenue (GGR) should be less severe than what was seen in the previous five months, and that the fair start to this month for concessionaires there is being propelled by the premium mass and VIP segments.

There’s also evidence that visits to the gaming center are starting to pick up, albeit modestly. Last weekend, arrivals totaled 13,000 and 9,700, respectively on Saturday and Sunday, compared with 10,500 and 9,500 during the last weekend of August.

Waiting on More

For Macau operators, including Wynn, the near-term outlook boils down to a waiting game. That is, waiting for the impact of individual visit scheme (IVS) visa reissuance to take hold.

Guangdong, the mainland province closest to the gaming hub, is just two weeks into granting IVS permits again, and it’s taking a week to 10 days to get those passes into the hands of tourists. In other words, it’s going to take some time for Wynn and its rivals to see the benefits of looser travel policy on top and bottom lines.

Assuming no flare-ups of coronavirus cases, the rest of China will resume issuing IVS visas on Sept. 23, meaning it will be October before Wynn and its counterparts get a lift from that policy.

For Macau operators, the tenth month of the year will be pivotal, because the first week includes Golden Week. The festival will have a profound effect on concessionaires’ fourth-quarter rebound aspirations.