Wynn Resorts Earnings Preview

Oct.18.11 | About: Wynn Resorts, (WYNN)

Wynn Resorts Limited (NASDAQ:WYNN), a leading developer, owner and operator of destination casino resorts, is slated to release its third quarter 2011 results on Wednesday, October 19, after market closes. The current Zacks Consensus Estimate for the third quarter is pegged at $1.18 per share, representing an annualized growth of 202.6%.

With respect to earnings surprises, Wynn Resorts has outperformed the Zacks Consensus Estimate in two of the last four quarters. The company’s earnings surprise ranged from negative 4.9% to positive 89.0% with the average at 31.7%. This implies that the company has beaten the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Previous Quarter Recap

During the quarter, Wynn Resorts reported adjusted earnings of $1.60 per share, which trounced the Zacks Consensus Estimate of 99 cents and improved considerably from 52 cents earned in the prior-year quarter.

The results were boosted by higher-than-expected revenues. Net revenues increased 32.4% year over year to $1,367.4 million. The out performance was primarily attributable to the business boom in Macau and improved performance at Las Vegas.

Revenues at Wynn Macau were up 36.7% year over year to $976.5 million and jumped 22.8% to $390.8 million at Las Vegas.

At the end of the quarter, Wynn Resorts’ total cash balances were $1.7 billion.

Estimate Revisions Trend

Estimates have not moved in the last 30 days for the third quarter, implying that the analysts are maintaining their view on the stock. The current Zacks Consensus Estimate for 2011 and 2012 are $5.51 (reflecting year-over-year growth of 161.4%) and $6.36 (reflecting year-over-year growth of 15.4%), respectively.

Agreement of Estimate Revisions

Revision trend in the last 30 days remain unclear for the third quarter, with one out of the 20 analysts raising the estimate while one lowering the same. In the last 7 days, similar trend was witnessed, thus providing no clear outlook.

For both fiscal 2011 and 2012, two analysts raised their estimates while one slashed the same over the last 30 days. In the last 7 days, one analyst increased the estimate and one decreased the same for both the fiscal years, indicating no clear direction.

The analysts have raised their estimates based on the bullish view on Wynn Macau and improving business at Las Vegas. However, one analyst reduced the estimate based on the prevailing uncertain economic conditions resulting in lower consumer spending.

Magnitude of Estimate Revisions

Over the past 30 days, Wynn’s estimate has been raised by a penny to $5.51 for fiscal 2011 and by 15 cents to $6.36 for fiscal 2012. However, for the third quarter, the estimate remained unchanged at $1.18 .

Our Take

Currently, we expect Wynn Resort to post third quarter results above the Zacks Estimate, given the continued impressive results in Macau, improved property-level EBITDA margins in Macau and stronger contributions from Encore Macau. Moreover, with an increase in demand, business at Las Vegas is stabilizing, which was worst hit due to the slowdown in economy.

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. Moreover, we remain encouraged with the company’s healthy balance sheet, relatively low capital requirements and ability to execute in a difficult operating environment.

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.

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 #2 Rank (short-term Buy rating) on the shares. We also reiterate our long-term Neutral recommendation.

One of Wynn Resorts’ primary competitors, MGM Resorts International (NYSE:MGM) is slated to release its third quarter 2011 results on November 3, 2011.