We recently downgraded our rating on Wynn Resorts Limited (WYNN) to Neutral from Outperform. The company, along with its subsidiaries, is a leading developer, owner and operator of destination casino resorts with properties in Las Vegas and Macau.
The company, based in Nevada, reported first quarter 2011 earnings above the Zacks Consensus Estimate buoyed by booming Macau operations and improved performance at Las Vegas. Given its strong brand name, we believe that Wynn Resorts is well positioned to command a premium rate compared to the overall gaming and lodging industry. The company is well placed both strategically and financially. Wynn Resorts also stands to gain market share as the economy progresses toward recovery.
Wynn Macau’s contribution to the company’s earnings has increased significantly in the last two years. The resort currently generates over 69% of its revenues from the region. Given the strong momentum in Macau, we expect the company’s earnings to improve further going forward. Moreover, we remain encouraged with the company’s strong brand name, a healthy balance sheet, relatively low capital requirements and the ability to execute in a difficult operating environment.
Furthermore, its Las Vegas business, which was at its worst during the slowdown, is also rebounding. However, recovery remains slow due to excess capacity in the market. We believe many of the positive attributes are reflected in the current share price leaving limited scope for upside. Additionally, we remain cautious on the stock due to limited diversity, stiff competition from Las Vegas Sands Corp. (LVS) and MGM Resorts International (MGM).
First Quarter 2011 Results
Wynn Resorts reported earnings of $1.38 cents per share, surpassing the Zacks Consensus Estimate of 73 cents and last year’s 27 cents.
The results were boosted by higher-than-expected revenues. Net revenues advanced 38.7% year over year to $1,260.3 million, outpacing the Zacks Consensus Estimate of $1,133.0 million.
Revenue at Wynn Macau jumped 46.6% year over year and Las Vegas operations were up 24.0%.
During the quarter, the company also doubled its dividend to 50 cents per share.
Zacks Consensus Estimate
In the last 7 days, none of the analysts have budged and estimates remain unchanged for the second quarter, fiscal 2011 and 2012, implying that the analysts do not see any near term catalyst, which is in line with our Neutral recommendation. The Zacks Consensus Estimates for the second quarter, 2011 and 2012 are pegged at 91 cents, $4.26 and $5.06 respectively.
