Wynn Resorts has an ace up its sleeve

November 21, 2023 at 10:50 AM EST

Wynn Resorts image in Las Vegas

Luxury integrated resorts and casino operator Wynn Resorts Ltd.(NASDAQ: WYNN) continues to experience positive normalization. The company operates NASDAQ: WYNN" target="_blank" rel="noopener">casino resorts in Las Vegas, Macao and Boston. The stock is a member of the consumer discretionary sector.

Business is back above pre-pandemic levels on the top line and bottom line per its adjusted property earnings before interest, taxes, depreciation, amortization and restructuring costs (EBITDAR) in the U.S. and 85% of the pre-COVID levels in Macau.

Wynn shares were punished after a strong Q3 2023 earnings report; investors may not be thinking longer term with its new growth engine in the pipeline. Wynn has bright prospects in the United Arab Emirates (UAE), with its Wynn Al Marjan Island expected to open in 2027. The UAE is a destination Las Vegas Sands Co. (NYSE: LVS) might consider.

Taking a page from China

To bolster tourism and rely less on oil, the UAE has been leaning on relaxing its gambling laws, as it's against Muslim law. Just as gambling is illegal in China, the UAE may pursue a similar framework except in Macau. Wynn Resorts had announced its plans to invest $3.9 billion to construct the 1,000-foot-high, 1,500-room luxury resort Wynn Marjan on the manmade Al Marjan Island of Ras Al-Khaimah.

Wynn Resorts CEO Craig Billings commented on their position in the UAE regarding gambling, "Our view is that it will likely be us and us alone for a multi-year period given that we are well underway on construction now. And, of course, we all know the advantages of being first, as we have seen in other markets."

Could Ras Al-Khaimah be the next Macau?

Ras Al-Khaimah continues to grow as a tourist destination, the sixth largest city in the UAE after Dubai. The integrated casino resort is developed with partners Marjan LLC and RAK Hospitality Holdings LLC. It would be the largest foreign investment in the country. Ras Al Khaimah should have over 3.8 million visitors annually by 2027 and up to 5.5 million by 2030.

Ditching sports betting and gaming

Wynn made the surprise move of curtailing its WynnBET sports betting and gaming app. It shut down its operations in eight states but will continue operating in Nevada and Massachusetts, where it has physical casino locations but is too costly with a low return. Wynn Resorts is still contemplating whether to continue operating the app in New York and Michigan.

Macao muscles back from zero-COVID

The lifting of the China zero-COVID policy has resulted in a dramatic recovery in Macau. Wynn's Macau operations, comprised of Wynn Palace and Wynn Macau, generated the lion's share of revenues in the quarter. Wynn Palace revenues climbed 597.8% year-over-year (YoY) to $524.8, up from $75.2 million in the third quarter of 2023. Wynn Macao revenues surged 630% to $295 million, up from $40.4 million in the year-ago period. Check out the sector heatmap on MarketBeat.

Earnings beat top and bottom line estimates, but stock sells off

On November 9, Wynn Resorts reported its fiscal Q3 2023 earnings for the quarter ended September 2023. The company reported a non-GAAP earnings per share (EPS) profit of 99 cents, beating consensus analyst estimates of 74 cents by 25 cents. Revenues surged 87.9% YoY to $1.67 billion, topping $1.58 billion analyst estimates.

The company bought back 596,948 shares of its common stock for around $94.11 for $56.2 million in the quarter. The board of directors declared a 25-cent cash dividend. The company ended the quarter with $2.79 billion in cash and cash equivalents and $737 million in the Wynn Resorts Finance Revolver.

GAAP net loss

While Wynn Resorts was profitable non-GAAP, it lost money under GAAP accounting. Net loss attributable to Wynn Resorts Ltd. was $116.7 million compared to $142.9 million in the year-ago period. The diluted net loss per share was $1.03 compared to $1.27 in Q3 2022. GAAP includes expenses like $22.9 million in stock-based compensation, $35.4 million in depreciation, $14.2 million in interest expense and over $12 million in other non-recurring expenses. Adjusted Property EBITDAR was $530.4 million compared to $173.5 million in the year-ago period.

CEO insights

Wynn CEO Craig Billings pointed out that Las Vegas produced records in Q3 gross gaming, food and beverage, and hotel revenue with a 10% YoY growth in RevPAR. The 12% YoY adjusted property EBITDA was accomplished on difficult YoY comps despite its new agreement with The Culinary Union. Wynn is the second largest casino operator in Las Vegas behind Caesar’s Entertainment Inc. (NASDAQ: CZR) and ahead of MGM Resorts International (NYSE: MGM). Macau generated $255 million of EBITDA, 85% of pre-COVID levels.

Billings commented that construction continues on Wynn Al Marjan Island with much of the hotel foundation complete. He noted that it was highly unlikely that every Emirate would legalize gambling due to cultural nuances.

Billings concluded that after having a multi-year gaming monopoly in the UAE, “… it may be a duopoly or an oligopoly of three. But I find either ultimate market structure undaunting given the database advantages of being first and the fact that we've very successfully operated in the two most competitive markets in the world. Vegas and Macau. As I've said before, this is the most exciting new market opening in decades.”

Wynn Resorts analyst ratings and price targets are at MarketBeat. Wynn Resorts peers and competitor stocks can be found with the MarketBeat stock screener.

Daily descending price channel

The daily candlestick chart on LVS illustrates a descending price channel that started after peaking at $109.98 on July 27, 2023. The descending trend lines run parallel as shares haven't been able to break out of the range. It attempted to break out on Nov. 3, 2023, peaking at $95.63, but fell back into it after its Q3 2023 earnings release. Shares gapped to the lower descending trendline at $81.41 before a rebound through the daily market structure low (MSL) trigger at $88.13 on Nov. 15, 2023, peaked as it fell back under the upper descending trendline. The daily relative strength index(RSI) oscillator bounced through the 40-band and is stalled, attempting to rise towards the 50-band. Pullback support levels are $83.76, $81.41, $76.33 and $72.73.

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