Earnings Scorecard: Wynn Resorts

Feb.20.11 | About: Wynn Resorts, (WYNN)

Wynn Resorts Limited (NASDAQ:WYNN), a leading developer, owner and operator of destination casino resorts, posted better-than-expected fourth quarter 2010 results on February 10, 2011, buoyed by solid performance of its Macau operations.

The recent earnings announcement, subsequent analyst estimate revisions and the Zacks ratings for both the short-term and the long-term are covered in depth below.

Earnings Report Review

During the quarter, Wynn Resorts reported earnings of 91 cents per share, surpassing the Zacks Consensus Estimate of 63 cents and last year's 8 cents.

The results were boosted by higher-than-expected revenues. Net revenues advanced 52.9% year over year to $1,237.2 million, outpacing the Zacks Consensus Estimate of $1,114.0 million.

Earnings Estimate Revisions: Overview

Following the fourth quarter earnings release, the Zacks Consensus Estimate for the company has been on the rise, with analysts remaining bullish on the stock. The strong Macau results have bolstered their confidence. The earnings estimate details are discussed below.

Agreement of Estimate Revisions

Revision trends in the last 30 days drifted towards the positive side. For fiscal 2011, 18 out of 23 analysts covering the stock raised their estimates and 2 reduced their estimates. For fiscal 2012, 17 out of 21 analysts increased their estimates and 1 slashed his/her estimates.

In the last 7 days, 16 analysts lifted their estimates for 2011 and 14 analysts upped their estimates for 2012. However , 2 analysts trimmed their estimates for 2011 and 3 decreased their estimates for 2012.

A positive inclination can be witnessed among the analysts, who mostly remain bullish on Wynn Macau. The analysts have increased their estimates based on continued strong results in Macau, improved property-level EBITDA margins in Macau and stronger contributions from Encore Macau.

Moreover, Las Vegas business is certainly poised to grow in the coming years as revenues jumped 8.0% year over year during the quarter and convention bookings continue to show signs of improvement heading into 2011.The analysts also remain positive about the ongoing development plans in Cotai.

However, a few analysts have trimmed their estimates as they believe recovery in the Las Vegas market will be slow due to excess capacity in the market with the opening of Cosmopolitan hotel and City Center. Plus, the company has no additional source of revenues until 2015, when management plans to open Wynn’s Cotai. Moreover, analysts are disappointed with the 4-year wait before the property opens for business.

Magnitude of Estimate Revisions

The magnitude of estimate revisions for Wynn Resorts has been quite significant over the last 30 days. Following the release of fourth quarter results, estimates for fiscal 2011 and fiscal 2012 have surged by 44 cents and 59 cents to $3.05 and $4.08, respectively. In the last 7 days, estimates for 2011 and 2012 jumped by 35 cents and 48 cents respectively.

Our Recommendation

We remain positive on Wynn Resorts as the company has strong brand equity and is strategically positioned to command a premium rate relative to the overall gaming and lodging industry. Wynn Macau’s contribution to the company’s earnings has increased significantly in the last two years. The resort currently generates over 73% of the total revenue.

Macau, the only Chinese city where gambling is legal, has survived the economic downturn relatively well. In order to expand its operations in Macau, Wynn Resorts has opened Encore at Wynn Macau and has the Cotai project in the pipeline. We expect the expansion to significantly add to the company’s top-line going forward.

Additionally, with the global economy showing a gradual recovery, the company is experiencing an increase in demand. We also remain encouraged by the company’s strong brand equity, healthy balance sheet, relatively low capital requirements and ability to execute in a difficult operating environment.

Additionally, its Las Vegas business, which faced the worst during the slowdown, is also rebounding but recovery remains slow due to excess capacity in the market. Moreover, we remain cautious on the stock based on limited diversity, absence of major development except the Cotai project and stiff competition from companies such as Las Vegas Sands Corp (NYSE:LVS) and MGM Resorts International (NYSE:MGM).

Accordingly, the company holds a Zacks #3 Rank, which translates into a short-term Hold rating. Our long-term recommendation for the stock remains Neutral.