On Sep 15, 2014, we issued an updated research report on Wynn Resorts Ltd. (WYNN).

On Jul 29, 2014, Wynn Resorts posted mixed second quarter results with earnings beating the Zacks Consensus Estimate while revenues missed. Adjusted earnings of $2.11 grew 40% from the year-ago quarter, driven by higher year-over-year revenues and profits in the Las Vegas segment. Also, net revenue increased 6% year over year to nearly $1.41 billion as higher revenues in Las Vegas made up for a rather soft performance in Macau.

Adjusted earnings before interests, taxes, depreciation and amortization (:EBITDA) increased 9.8% year over year to $467.4 million, driven by higher revenues, partially offset by higher operating costs and expenses. Total operating costs and expenses were up 1.2% to $1.07 billion.

Wynn Resorts, one of the leading companies in the gaming industry, is well poised to grow both strategically and financially. In order to boost performance in Las Vegas, the company has re-modelled the rooms at its properties and the baccarat pit. Though tourism in Las Vegas has not yet reached the pre-recession level, it is on its way to recovery.

The improving visitation pattern in the Las Vegas market should prove to be beneficial for the company in the coming quarters. In fact, Las Vegas is on track to break its annual visitation record. Given these expectations, we believe that the company’s efforts toward renovation would help in improving revenues in the region.

The company also boasts various prestigious properties in Macau and generates over 70% of its revenues from the region. However, the region is currently in trouble. Gross gaming revenue in Macau for the months of June July and August continued to decline.

The slowdown can be attributed to the fact that high-stake gamblers are curtailing spending amid a cooling Chinese economy. Also, the nationwide crackdown on corruption in China has compelled Macau officials to impose restrictions on VIP gamblers in order to stop billions of dollars from being siphoned off illegally from mainland China to Macau.

Restrictions like limitations on the use of state-backed payment processor UnionPay is making it harder for players to obtain cash to gamble. Moreover, tighter restrictions on visas and an impending ban on smoking in casinos is expected to pressure on gaming revenues in the upcoming quarters.

However, currently strong growth in the mass market is mitigating the effects of a slowdown in the VIP gaming business to some extent. Moreover, a growing Asian middle class population and infrastructure improvements would facilitate convenient travel to and within Macau. We expect the company’s Macau properties to benefit highly from the increasing demand pattern and the flourishing mass market segment, going forward. Wynn Resorts presently has a Zacks Rank #3 (Hold).

Other Stocks to Consider

Better-ranked stocks in the same industry include 500.com Limited (WBAI) and MGM Resorts International (MGM). While 500.com Limited sports a Zacks Rank #1 (Strong Buy), MGM Resorts carries a Zacks Rank #2 (Buy). Investors can also consider American Woodmark Corp. (AMWD), a stock from the consumer discretionary sector that sports a Zacks Rank #1.

Read the Full Research Report on WYNN
Read the Full Research Report on MGM
Read the Full Research Report on AMWD
Read the Full Research Report on WBAI


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