Wynn Resorts Limited (WYNN), a leading developer, owner and operator of destination casino resorts, is slated to release its third quarter 2010 results on Tuesday, November 2, before the market open. The current Zacks Consensus Estimate for the third quarter is 41 cents per share, representing annualized growth of 24.7%.
With respect to earnings surprises, over the trailing four quarters, Wynn Resorts has outperformed the Zacks Consensus Estimate for three quarters. However, the company has oscillated greatly from approximately negative 33.3% to positive 135.7%. The average earnings surprise was a positive 54.5%. This implies that the company has beaten the Zacks Consensus Estimate by the same magnitude over the last four quarters.
Previous Quarter Performance
During the quarter, Wynn Resorts reported earnings of 52 cents per share, surpassing the Zacks Consensus Estimate of 40 cents and year-ago quarter’s 9 cents.
The results were boosted by higher-than-expected revenues. Net revenues advanced 42.8% year over year to $1,032.6 million, outpacing the Zacks Consensus Estimate of $986.0 million. The outperformance was driven by a solid performance at its Macau operations.
Revenues at Wynn Macau were up 74.1% year over year to $714.4 million and increased marginally by 1.7% to $318.2 million at Las Vegas.
At the end of the quarter, Wynn Resorts’ total cash balances were $1.9 billion.
Estimate Revisions Trend
Estimates have moved up slightly, in the last 30 days, implying that the analysts are maintaining their view on the stock. The current Zacks Consensus Estimate is $1.61 for 2010 (reflecting year-over-year growth of 520.5%) and $2.18 for 2011 (reflecting year-over-year growth of 35.4%).
Agreement of Estimate Revisions
In the last 30 days, 4 out of 21 analysts have raised their estimates for the third quarter of 2010 and 1 has moved in the opposite direction. For fiscal 2010, 3 out of 19 analysts have increased their estimates and 1 analyst has slashed the estimate. For fiscal 2011, 4 of the 23 analysts covering the stock have made upward earnings estimate revisions and 3 have decreased their estimates.
The analysts have raised their estimates based on a bullish view on Wynn Macau. Wynn Macau’s contribution to the company’s earnings has increased significantly in the last two years; the resort currently generates over 65% of its revenues. Macau, the only Chinese city where gambling is legal, has handled the economic downturn relatively well.
In order to expand its operations in Macau, Wynn Resorts recently opened Encore at Wynn Macau and has a potential Cotai project in the pipeline. Additionally, analysts remain optimistic about the lodging industry based on the improving corporate and group demand trends and favorable rates. The cash position of the company is also strong; hence, analysts expect the company to use excess cash to increase dividend and repurchase shares.
A few analysts have trimmed their estimates as they remain cautious on Las Vegas performance. Moreover, the company has no additional source of revenues until 2014, when management plans to open Wynn’s Cotai.
Over the last 7 days, for both the third quarter of 2010 and fiscal 2010, 1 analyst has raised the estimate and none has cut down estimate. For fiscal 2011, 1 analyst has upped the estimate and 1 has reduced the estimate, thus providing no directional movement.
Magnitude of Estimate Revisions
There has been no change in the last 60 days in the earnings estimate of 41 cents for third quarter 2010 as seen from the magnitude of the Zacks Consensus Estimate trend. Therefore, the analysts expect the company to report in line.
In the last 30 days, estimates for fiscal 2010 increased by a penny to $1.61 and for fiscal 2011, dropped by 4 cents to $2.18.
Our Take
Currently, we expect Wynn Resort to post third quarter results above the Zacks Estimate, given continued impressive results in Macau, improved property-level EBITDA margins in Macau and stronger contributions from Encore Macau. Moreover, Wynn Resorts is experiencing an increase in demand with a gradual recovery in global economy.
We remain positive on Wynn Resorts as the company has a strong brand equity and is strategically positioned to command a premium rate relative to the overall gaming and lodging industry. Moreover, we remain encouraged with the company’s healthy balance sheet, relatively low capital requirements and ability to execute in a difficult operating environment.
Additionally, the company is focusing on the remodeling of rooms at Wynn Las Vegas, to attract value-conscious customers, who are ready to spend a little bit more.
However, we remain cautious on the stock as the company is entirely dependent on its four properties in Las Vegas and Macau. Moreover, Wynn Resorts operates in a highly competitive Las Vegas and Macau marketplace and with more hotels opening and promotional activities increasing in Macau and Las Vegas, this could also result in excess supply and reduce the company’s market share.
The recovery in the Las Vegas market is also expected to be slow due to challenging domestic economy. Additionally, any changes in government policies, primarily in overseas countries, related to the tax rates and gaming regulation can create a headwind for the company.
Accordingly, we have a Zacks #3 Rank (short-term Hold recommendation) on the shares. We also reiterate our long-term Neutral rating.
One of Wynn Resorts’ primary competitors, Las Vegas Sands Corp. (LVS) reported its third quarter 2010 adjusted earnings of 34 cents, beating the Zacks Consensus Estimate of 23 cents and 3 cents in the year-earlier quarter. The company’s results reflect a strong performance at its Macau business as well as outstanding results at its new resort in Singapore.
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