Recommendation: Despite gaining 23 percent year-to-date, Wynn Resorts, Ltd. (WYNN) has room to run higher. The company has demonstrated bullish technical signs, strong Macau performance and the ability to capitalize on a shift toward luxury - all positives for the stock. For a short-term play, the June 2013 $145 call, expiring on June 22, looks appealing - with a net debit of $1.16.
The Argument - Growth and Balance Sheet
WYNN reported quarterly earnings last month, showing a profit of $2.03 a share excluding some items, but beating the $1.55 average of 24 analysts' estimates. Revenue rose 5 percent to $1.38 billion, matching forecasts of $1.38 billion. Net income rose 44 percent to $203 million, or $2 a share, from $140.6 million, or $1.23, a year earlier.
In Las Vegas, casino revenue rose 12 percent to $176.3 million in the first quarter on higher table winnings. Adjusted property earnings before interest, taxes, depreciation and amortization (EBITDA) in Las Vegas rose 19 percent to $120.4 million.
In Macau, profits rose 14 percent to $330.7 million on a 4.4 percent increase in revenue (to $992.1 million). The company noted higher winnings from mass-market table games and slot machines contributed to this increase. Betting on table games in the VIP segment fell 15 percent while revenue in the mass-market category rose 14 percent.
Wynn Resorts has lost market share in Macau in recent years as rivals such as Las Vegas Sands Corp. (LVS) and Galaxy Entertainment opened properties, but the company's position is quite strong. Wynn's market share in Macau stood at 10.8 percent last year, down from a recent high of 15.9 percent in 2008.
WYNN's P/E multiple is at 24.60 - below the industry average of 32.73, but above the S&P 500 average of 16.70. The stock is currently trading 4 percent below its intrinsic value of $144.36, suggesting that the price is fundamentally undervalued at these levels.
WYNN's current Price/Sales of 2.68 is below the average of its industry of 3.33. The beta of 1.62 implies higher volatility of the stock with respect to the S&P 500.
WYNN's Total Debt/Equity is 2105.00 and is not acceptable for our model. WYNN paid out a dividend of $4.00, or 7.50 percent last year.
The company is building a $4 billion resort on the Cotai Strip in Macau that is scheduled to open in 2016. Wynn said it hoped to soon reveal model photos of the project, which will feature gondolas shaped like dragons, snorting smoke.
Wynn Resorts, Limited, together with its subsidiaries, engages in the development, ownership, and operation of destination casino resorts. The company owns and operates two casino resort complexes in Las Vegas, the Wynn Las Vegas and Encore at Wynn Las Vegas with two hotel towers with a total of 4,750 hotel rooms, suites, and villas; 240 table games; 2,195 slot machines; a race and sports book; 1 poker room in approximately 186,000 square feet of casino gaming space, including a sky casino and private gaming salons; 35 food and beverage outlets; 2 spas and salons; lounges; and approximately 95,000 square feet of retail space featuring various boutiques.