We are upgrading our rating on Paradise, Nevada-based Wynn Resorts, Limited (WYNN), a developer and operator of high-end hotels and casinos in Las Vegas and Macau, to Outperform from Neutral.
The rating upgrade is based on strong growth momentum in Macau, which is the world’s largest gambling market. Wynn Resorts generates 73% of its revenue from Macau. In both February and March, Macau casino revenue leaped 48% driven by robust demand from Chinese gamblers and new visitors from China’s mainland, thus boosting the earnings of the company. As a result, we also expect Wynn Resorts to report first-quarter 2011 results above the Zacks Consensus Estimate. The company is slated to release its first-quarter results on Tuesday, April 19.
Wynn Resort also boasts a potential Cotai project in the pipeline, which will further expand its operations in Macau. The site preparation for the project is already underway and the company expects to start construction in March or April, 2011.The management plans to launch the project in late 2014 or early 2015.
Wynn Resorts has recently inked a partnership with online poker giant, PokerStars. According to the agreement, both the companies will pursue online poker legalization, and once the law is passed, they will partner in a new poker site named PokerStarsWynn.com to run a regulated Internet poker business in the United States. Wynn Resorts believes that the lack of regulation for internet gaming within the U.S. must change, so that gambling over the web becomes a regulated and taxable service in the U.S. We believe that once online poker is legalized, it will change the online poker future and there will be no looking back for both the companies. Moreover, the deal will set the way for a new source of income for Wynn Resorts, and the company will generate significant revenue through poker business.
The company’s Las Vegasbusiness, which suffered significantly at the time of slowdown, is also rebounding with increased room rates and conventional bookings.The convention bookings in Las Vegas continue to show signs of improvement heading into 2011. Management expects convention bookings to increase to 20–22% for rooms in 2011 versus a low of 13% in 2009. The Las Vegas 2011 results will also benefit from remodeling of its room and baccarat pit by April 2011 and full-year impact of Surrender nightclub and Beach Club.
Moreover, we remain encouraged by the company’s strong brand name, healthy balance sheet, strong cash flow position, relatively low capital requirements and ability to execute in a difficult operating environment.
Earnings Estimate Revisions: Overview
Following the current Macau market strength, stabilization in the Las Vegas market and company’s recent deal with the online poker giant PokerStars, the Zacks Consensus Estimate for the company has increased, with the analysts remaining bullish on the stock. The earnings estimate details are discussed below.
Agreement of Estimate Revisions
Revision trends in the last 7 days drifted toward the positive side. For fiscal 2011, 2 out of the 24 analysts covering the stock raised their estimates and for fiscal 2012, 2 out of the 22 analysts lifted their estimates. None of the analysts reduced their estimates for 2011 and 2012. For the first quarter of 2011, one analyst has hiked its estimate and one has slashed its estimate, thus providing no directional movement.
The analysts have raised the estimates based on strong growth potential in Macau and expect the company to benefit from its strong presence in the market. Macau, the only Chinese city where gambling is legal, attracts visitors from all over the world resulting in improvement in both visitation and spend per visit.
Magnitude of Estimate Revisions
The earnings estimates have climbed by 2 cents to 73 cents for the first quarter of 2011, by 4 cents to $3.20 for fiscal year 2011 and by 9 cents to $4.22 for fiscal 2012, over the last 7 days.
WYNN RESRTS LTD (WYNN): Free Stock Analysis Report
Zacks Investment Research
