Wynn Resorts: Chinese Slowdown Poses Downside Risks

| About: Wynn Resorts, (WYNN)
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Wynn Resorts, Limited (NASDAQ:WYNN), developer and operator of casino resorts, announced its second quarter results after the close yesterday. Shares of Wynn Resorts traded with small gains in after-hours trading.

Second Quarter Results

Wynn's second quarter results came in softer compared to the same period last year. Second quarter revenues fell 8.3% to $1.25 billion. Second quarter profits came in at $138 million, or $1.37 per diluted share. Last year, the company reported earnings of $0.97 per share, after the company took a $107 million charge related to charitable contributions. Excluding the impact of those contributions, profits came in at $1.60 last year.

Las Vegas

The operations in Vegas reported a 11.6% decline in revenues to $346 million. Adjusted EBITDA fell 38% to $82 million as casino revenues fell 38% to $99 million. Non-casino revenues rose 5.5% to $291 million as a result of greater hotel, food and beverage sales, offset by lower retail and entertainment revenues.


The operations in Macau reported a 7.1% decline in revenues to $908 million, making up roughly 73% of total revenues. Adjusted EBITDA fell 4% to $302 million. The company's VIP's tables generated 7.2% lower turnover to $30.3 billion. The win percentage of 2.79% came in at the lower range of the guided 2.7%-3.0%. Mass market tables saw turnover of $672 million, down 2.7% on the year with a win percentage of 29.8%, which came in above the guided range of 26%-28%. Slot machines generated 22.1% less turnover to $1.2 billion, driven by lower winnings per slot machine and a lower slot count.

Investment Thesis

The company ended the quarter with roughly $1.9 billion in cash and equivalents and operates with approximately $5.5 billion in debt outstanding for a net debt position of $3.6 billion. For the first six months of the year, the company reported diluted earnings per share of $2.59 versus $2.36 last year. As such, Wynn is on track to earn $5 per share for the full year of 2012, valuing the company at 20 times earnings. Furthermore, the company pays a quarterly dividend of $0.50 per share, for an annual dividend yield of 2.0%.

Shares have witnessed a 25% correction from its peak of $135 in April of this year to $98 at the moment. Year to date, the shares have lost 12% amidst worries about the impact of an economic slowdown on gambling revenues. Despite the sizable correction, I am not a buyer of the shares amidst emerging signs that the economic correction in China is picking up pace. Wynn's operations in Macau, which generate roughly 75% of the company's revenues, will not be immune in a severe growth slowdown.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.