We are initiating coverage on Wynn Resorts Ltd. (WYNN) with a Neutral recommendation. The company, along with its subsidiaries, is a leading developer, owner and operator of destination casino resorts with casino hotel resort properties in Las Vegas and Macau.
Wynn Resorts’ third quarter earnings of 33 cents per share were well ahead of the Zacks Consensus Estimate of 14 cents, primarily driven by a better-than-expected growth in the top line and improvements in the bottom line.
Wynn Resorts boasts a strong balance sheet in the gaming industry following its Hong Kong IPO in the second half of 2009. Net proceeds to the company as a result of this transaction were approximately $1.8 billion.
In order to expand its operations in Macau, Wynn Resorts is preparing to open a new resort — Encore at Wynn Macau — in the first half of this year. Macau, the only Chinese city where gambling is legal, has weathered the economic downturn quite well.
The company has paid a special cash dividend of $4.00 per share on its outstanding common stock in December 2009. Additionally, the Board of Directors also approved the commencement of a regular cash dividend program, beginning in 2010. The regular cash dividend is expected by the company to be 20 cents per common share for the first quarter of 2010.
On the downside, Wynn Resort’s domestic and international businesses continue to be negatively impacted by the prevailing economic conditions. The U.S. operations are the worst hit.
Wynn Resorts also faces unanticipated legislative risks from China. Given the company’s continuous growth in exposure to Macau, any unfavorable changes in visa restrictions will result in a slowdown in footfall to Macau.
Additionally, some of its competitors are also investing billions for expansion in Macau and Las Vegas. This could result in excess supply and reduce the company’s market share.
While we remain encouraged with the company’s strong brand name, healthy balance sheet and ability to execute in a difficult operating environment, we think a limited diversity remains one of its concerns. Additionally, the challenged economic factors will prohibit customers from gambling. Hence, we have assigned a Neutral recommendation on the shares.
Read the full analyst report on “WYNN”
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