We reaffirmed our Neutral recommendation on
Wynn Resorts Ltd.
) on Nov 21, 2013 taking into account its strong third quarter
results and brand position, partly offset by stiff competition.
Why the Reiteration?
Wynn Resorts reported strong third quarter 2013 results with both
its top and bottom line beating the Zacks Consenus Estimate.
Revenues of $1.39 billion surged 7.1% year over year driven by
strong performances in both Macau and Las Vegas. Also, earnings
per share of $1.84 increased 24.3% year over year as a result of
top-line and profit growth.
Given the strong third-quarter results, estimates for the year
largely moved north over the past 60 days. The Zacks Consensus
Estimate for 2013 was up 28.5% to $6.89 per share while that for
2014 increased 6.0% to $7.30 over the same period.
Wynn Resorts is well positioned both strategically and
financially. It has been able to withstand the downturn
relatively well as it operates both in the U.S. and Asia. We
believe that the company stands to gain market share with the
slow revival of the U.S. economy and its strong brand name. Wynn
Resorts is experiencing improved business in Las Vegas as leisure
demand continues to improve with a gradual recovery of the U.S.
Additionally, to boost performance in Las Vegas, the company
has remodeled the rooms at its properties and the baccarat pit.
The company foresees development opportunities in other domestic
markets like Florida and Massachusetts as well.
Moreover, management is currently working on the concept of an
urban Wynn in domestic markets under which it seeks to build
properties in higher-priced U.S. markets like Philadelphia and
Boston where room rates are very high. Management expects hotels
in these markets to be well accepted due to the presence of
gaming areas at the properties.
Meanwhile, Macau is the only Chinese city where gambling is legal
and it is one of the largest gaming destinations in the world.
The company generates over 70% of its revenues from the Macau
resorts. Also, the company has embarked on a project in Cotai,
Macau in order to expand its operations in the region.
The company's cash deployment strategy reflects positive outlook
and confidence in its fundamentals. However, increased hotel
openings and promotional activities pose stiff competition.
Excess supply, especially in the Macau market, might reduce the
company's market share.
Moreover, the company's upcoming project in Cotai will likely
face extreme peer pressure from several Chinese casino operators
and Las Vegas Sands. Also, limited diversification and the
challenging macro environment remain matters of concern.
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Other Stocks to Consider
Wynn Resorts presently retains a Zacks Rank #2 (Buy). Other
stocks worth considering in the gaming industry are
Melco Crown Entertainment Ltd.
Bally Technologies, Inc.
Century Casinos Inc.
). While Melco Crown Entertainment carries a Zacks Rank #1
(Strong Buy), Bally Technologies and Century Casinos hold a Zacks
Rank #2 (Buy).