Business Strategy and Outlook
COVID-19 continues to materially impact Wynn’s Macao operations (50% of estimated 2024 EBITDA), which Mmorningstar analyst view as transitory. But the Macao government’s plans to increase supervision of the region’s casinos now elevates long-term operational risk. Specifically, Wynn has outsized exposure to the expected long-term shift away from VIP gaming revenue toward non gaming and mass play. Still, Morningstar analyst see an attractive long-term growth opportunity in Macao, with Wynn Resorts’ high-end iconic brand positioned to participate
On a Long term basis, Morningstar analysts view solid visitation and gaming growth for Macao, aided over the next several years as key infrastructure projects to alleviate the region’s congested traffic continue to come on line, which should expand constrained carrying capacity, thereby driving higher visitation and spending levels. Also, analysts expect upcoming developments that add attractions and improve Macao’s accessibility will improve the destination’s brand. With Wynn holding one of only six gaming licenses and plans to develop further with its Crystal Pavilion project, it stands to benefit from this growth. That said, the Macao market is highly regulated, and as a result, the pace and timing of growth are at the discretion of the government.
Financial Strength
Wynn’s financial health is more stressed than peers Las Vegas Sands and MGM, but the company has taken steps to lift its liquidity profile, including suspending its dividend, cutting discretionary expenses, tapping credit facilities, and issuing debt. As a result, the company has enough liquidity to operate at near-zero revenue through 2022. Should the pandemic’s impact last longer, Morningstar analysts expect the company’s banking partners will continue to work with Wynn, given its intact regulatory intangible advantage (the source of its narrow moat), which drives cash flow generation potential. This view is supported by narrow-moat Wynn Macau surviving through 2014-15 when its debt/EBITDA temporarily rose to around 8 times, above the 4.5-5.0 covenants in those years.Wynn entered 2020 with debt/adjusted EBITDA of 5.7 times, but the metric turned negative in 2020 and was elevated in 2021 (estimated at 15.4), as demand for leisure and travel collapsed during the this period due to the COVID-19 outbreak. As demand recovers in the next few years, Morningstar analysts expect leverage to reach 10.0 times, 7.8 times, and 6.6 times in 2022, 2023, and 2024, respectively.
Bulls Say
- Wynn is positioned to participate in the long-term growth of Macao (76% of pre-pandemic 2019 EBITDA) and has room share of 9% with the opening of its Cotai Palace property in 2016.
- Wynn has a narrow economic moat, thanks to possessing one of only six licenses awarded to operate casinos in China.
- A focus on the high-end luxury segment of the casino industry allows the company to generate high levels of revenue and EBITDA per gaming position in the industry.
Company Profile
Wynn Resorts operates luxury casinos and resorts. The company was founded in 2002 by Steve Wynn, the former CEO. The company operates four megaresorts: Wynn Macau and Encore in Macao and Wynn Las Vegas and Encore in Las Vegas. Cotai Palace opened in August 2016 in Macao, Encore Boston Harbor in Massachusetts opened June 2019. Additionally, we expect the company to begin construction on a new building next to its existing Macao Palace resort in 2022, which we forecast to open in 2025. The company also operates Wynn Interactive, a digital sports betting and iGaming platform. The company received 76% and 24% of its 2019 pre pandemic EBITDA from Macao and Las Vegas, respectively.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.