Shares of Wynn Resorts, Limited (NASDAQ: WYNN) have fallen 38% in the past year as some of the company's end markets hit a rough patch. Macau's gaming revenue growth has come to a standstill, and Las Vegas continues to be stuck in a rut.
Despite the disappointing stock performance, Wynn is well positioned in the gaming industry and is about to open a new resort in the Boston area. The stock may have fallen into value territory for investors.
Playing in the best markets in gaming
Wynn Resorts is one of only three companies to have exposure to both Macau and the Las Vegas Strip gaming markets. They two regions generated $37.6 billion and $6.6 billion, respectively, in gaming revenue in 2018, making them the two biggest gaming regions in the world.
Wynn Resorts focuses on the top end of each market. That's how it generates more EBITDA, a proxy for cash flow, at Wynn Las Vegas than any other resort on the Las Vegas Strip. In Macau, it generated 17% of Macau's gaming industry's EBITDA over the past 12 months despite having just 7% of its hotel rooms. Wynn Resorts is in the best gaming markets in the world and outperforms rivals, which says a lot about how well its high-end strategy is working.
Opening a new growth market
Within weeks, Encore Boston Harbor will open in the Boston area, a $2.6 billion bet that the area can support a new gaming resort. The property only has 671 hotel rooms, but it'll serve an ultra-premium market that can command room rates of more than $1,000 per night and could drive very high gaming revenue per table.
It remains to be seen whether the costly resort will pay off, but Wynn Resorts has already spent most of the money to build the property, which means it's reflected on the balance sheet, so the EBITDA that will be added will be incremental in addition to what the company is already generating.
New management is key
When founder Steve Wynn was forced to resign from Wynn Resorts, it was seen as a negative by many observers. But the new management team, led by CEO Matt Maddox, has renewed its focus on making prudent investments. A new tower planned for Las Vegas was revised to be a conference center, which aims to bring in more business travelers.
In Asia, management has set its sights on Japan, which could be the next grand prize in gaming. Companies are competing to spend as much as $10 billion on a new resort, but if Wynn Resorts gets the contract, it would be a transformative addition for the company.
What I think is worth understanding is that Wynn Resorts' current management is focused on making investments that will generate a high return. That may mean less flashy projects less than would have been built under Steve Wynn, but it's better for shareholders in the long term.
A value in gaming
You can see above that the drop in Wynn Resorts' shares has left the company trading with an enterprise value to EBITDA of less than 12, which is a solid value given the imminent opening of Encore Boston Harbor. With a little luck, Macau will grow a bit in 2019, and Wynn's EV/EBITDA ratio could fall under 10, which would be a great value.
Wynn Resorts' stock has been beaten up over the past year, but that doesn't mean it's a bad bet. In fact, I think odds are high the stock will outperform the market, and that's why I'm keeping my outperform call on my CAPS page.
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