Wynn Resorts are up after another great quarter but remain cheap
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Shares of Wynn Resorts popped 2% in after-hours trading Tuesday after the casino operator reported stronger-than-expected quarterly results, driven by the Super Bowl in Las Vegas and the recovery in China’s Macao region. We’re surprised the stock isn’t up more. Operating revenue increased 31% year over year, to $1.86 billion, beating expectations of $1.79 billion, according to estimates compiled by LSEG. Adjusted earnings per share (EPS) came in at $1.59 per share, a big beat versus the LSEG consensus estimate of $1.27. Adjusted property EBITDAR (earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs) — Wynn’s key metric for profitability — increased 50% year over year, to $647 million, above the $603 million consensus estimate, according to FactSet. Wynn Resorts Why we own it: We bought this casino operator for its well-run resorts in Las Vegas, Boston, and especially, the Macao region of China — where we expect more upside as the world’s second-largest economy continues to recover from the pandemic lockdowns. The company generated more in profits during 2023 than it did in 2019 and yet the stock trades well off its pre-Covid levels. Competitors: Las Vegas Sands , MGM Resorts International , DraftKings Last buy: Feb. 20, 2024 Initiation: April 2021 Bottom line The market has been worried about anything tied to discretionary spending after seeing tepid guidance from several consumer companies this earnings season. But the Vegas numbers in Tuesday’s results show that Wynn’s premier resorts — and the quality services it offers — have a degree of pricing power that is underappreciated. As for Macao, which is expected to generate slightly more than half of adjusted EBITDAR this year, concerns about the Chinese consumer continue to weigh heavily on the stock, preventing it from recapturing the multiple it traded at before Covid. And yet, Wynn continues to post results that show a recovery nearly all the way there. Although people in China may be spending less on goods, a 99% hotel occupancy rate at Wynn’s properties tells a much different story. It shows a willingness to travel domestically despite economic headwinds. And those revenues are coming at a higher margin today than five years ago. The stock has fallen into the high $90s from the pop to $106 after the last quarterly report — even though we saw a round of beats at every property and heard an upbeat view about April. These were great results from Wynn. We reiterate our 1 rating and $125 price target. Quarterly results Here’s a closer look at how each operating region and segment performed in the fourth quarter, starting with Macao. Macao It was a double beat in Macao, with both properties (Wynn Palace and Wynn Macao) reporting revenue and profit results better than Street expectations. We had a feeling that Macao was set up for a beat after reviewing the recent Las Vegas Sands quarter, which saw weakness in the region due to planned renovation work. Those visitors had to stay elsewhere, leading to Wynn taking market share, with a collective adjusted EBITDAR of $340 million on gross gaming revenue market share that the company said was above the prior quarter and its 2019 rates. By the way, that $340 million in adjusted EBITDAR represents about 88% of what the company generated in 2019, a slight improvement from the 85% level Wynn generated in the fourth quarter of 2023 versus the same period in 2019. While a full 100% recovery remains elusive, Wynn’s disciplined operating expenses and a favorable mix shift toward higher-margin mass gaming customers are driving stronger margins. In the quarter, Macao’s EBITDA margin was roughly 34%, up 140 basis points from the fourth quarter of 2023 and a whopping 310 basis points versus the first quarter of 2019. Guidance: In more good news, management said the strength of the first quarter has continued through April. Its mass drop per day — the amount of money Wynn collected from drop boxes at its gaming tables — in April grew 30% versus 2019 figures. On the non-gaming side, its hotel occupancy was at 99%. The company also said it was happy with its May Golden Week results despite unfavorable weather. The holiday period ran from May 1 to May 5, and management said its mass drop per day increased by 30% versus the comparable 2019 period. Las Vegas Las Vegas put up a record first quarter of adjusted property EBITDAR. February was the biggest month in the quarter, driven by the Super Bowl being played in Vegas for the first time. A strong Chinese New Year also contributed to the results. Although the company’s casino revenues fell more than 12% from last year, there was a ton of strength in the non-gaming part of its business, with hotel revenues up 21%. Guidance : Management said its top-line trends in April were healthy with the drop, handle, and revenue per available room (RevPAR) all growing year over year despite difficult comparisons. Encore Boston Harbor Wynn’s Boston property was relatively stable, with flattish revenues and adjusted EBITDAR despite poor weather in January and inflationary pressures. Guidance: As for the current quarter, management said demand has “remained healthy” through April. However, the company is putting a development for the property on hold due to an inability to reach an agreement with local authorities on financial terms. The company plans to redirect this capital to other development projects it is working on, such as its project in the UAE. (Jim Cramer’s Charitable Trust is long WYNN. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
The Wynn Las Vegas resort and casino at dusk in Las Vegas, Nevada, US, on Monday, May 8, 2023. Wynn Resorts Ltd. is scheduled to release earnings figures on May 10.
Bridgett Bennett | Bloomberg | Getty Images
Shares of Wynn Resorts popped 2% in after-hours trading Tuesday after the casino operator reported stronger-than-expected quarterly results, driven by the Super Bowl in Las Vegas and the recovery in China’s Macao region.
We’re surprised the stock isn’t up more.
