Analyst Trims Wynn Earnings Estimates, Price Target, But Remains Optimistic

Posted on: July 2, 2019, 01:34h. 

Last updated on: July 2, 2019, 02:52h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

David Katz of Jefferies, one of the most widely followed gaming and leisure analysts on Wall Street, pared earnings estimates and his price target on shares of Wynn Resorts, Ltd. (NASDAQ:WYNN), but remains bullish on the stock.

Wynn Macau. Analysts are hoping the company can add to its non-China revenue. (Image: Booking.com)

In a recent note provided to Casino.org, the analyst revised his 2019 earnings per share (EPS) estimate on the owner of the Wynn and Encore in Las Vegas to $7.37 from $8 while trimming his 2020 EPS estimate to $9.65 from $10.30. Katz also made a modest downward revision to his price target on Wynn to $160 from $166 while maintaining a “buy” rating. As of this writing, the stock resides just under $133.

As a consequence of our estimate revisions, we are adjusting our price target to $160 from $166, with our valuation multiples remaining the same,” said Katz in a note out Monday. “We believe that our thesis maintains merit, which is predicated on an inflection in the Chinese macro economy as the year progresses.”

Wynn is heavily dependent on Macau, the lone region in China where gambling is legal, as a driver of its revenue. Operators there said gross gaming revenue (GGR) rose nearly six percent last month to $2.96 billion.

China, Other Catalysts

As Casino.org reported Monday, shares of US casino operators with Macau exposure, including Wynn, rallied on news of thawing trade tensions between the US and China. Katz sees resumption of trade negotiations between the world’s two largest economies as a positive for Wynn stock, but that does not guarantee a smooth ride.

“We believe that the current announcement that negotiations will resume should have a positive impact, but the outcome remains speculative and subject to volatility,” said the analyst.

Analysts and investors have long wanted more diversity in Wynn’s revenue stream, meaning decreased dependence on Macua and the broader Chinese economy. The recently opened $2.6 billion Encore Boston Harbor, the company’s first US property not in Las Vegas, could help in the quest to broaden revenue horizons.

Encore Boston Harbor, the first US casino in a large metropolitan area, could eventually become the dominant New England gaming venue and one of the most profitable regional casinos in the country, according to some analysts.

In a base case scenario, Jefferies’ Katz sees the Everett, Massachusetts property adding $85 million in earnings before interest, taxes, depreciation and amortization (EBITDA) to Wynn this year and $247 million in 2020.

Near-Term Issues

Wynn holds an analyst meeting next week and it is expected the company will provide clarity on issues ranging from Macau to the Encore Boston Harbor opening and perhaps offer comments on acquisition opportunities as well as plans to return capital to investors.

In May, the company raised its quarterly dividend to $1 a share from 75 cents, but it has not recently announced plans to buyback any of its stock.

Wynn’s “capital allocation strategy has become less clear, given the endeavours to acquire and divest assets since our upgrade,” said Katz. “We remain steadfast in our view for the time being, given that the trade talks are on, the M&A efforts have not progressed and Boston is now open and operating.”