Wynn Resorts Ltd. (WYNN), Large Cap AI Study of the Week

December 12, 2023

Weekly AI Pick from the S&P 500

Wynn Resorts Ltd. (WYNN)

Company Overview

Wynn Resorts, Limited is a prominent player in the luxury integrated resorts industry, with significant operations in Macau, Las Vegas, and Massachusetts, and an online gaming division known as WynnBet. The company specializes in providing high-end accommodations, retail options, dining and entertainment, convention spaces, and gaming facilities. Despite the challenges posed by the COVID-19 pandemic, which led to a downturn in visitation due to travel restrictions, the company has seen a recovery with the lifting of most restrictions in Macau by the end of 2022.

The company's success in Asia is highlighted by its prestigious properties, Wynn Palace and Wynn Macau, which have received numerous Forbes Five-Star awards. Wynn Resorts is also expanding its non-gaming amenities with the next phase of Wynn Palace and is developing a new resort in the United Arab Emirates, the "Marjan Project," slated to open in 2027. In the digital realm, Wynn Interactive caters to the growing market for online sports betting and casino gaming.

In terms of competition, Wynn faces numerous rivals in Macau, while its Las Vegas and Massachusetts operations tap into the respective regional tourism and gaming markets. The company's financial performance is primarily driven by its casino business, but also includes revenue from hotel stays, food and beverage services, retail, and entertainment.

Regulatory compliance is a critical aspect of Wynn Resorts' operations. The company is closely monitored by the Nevada Gaming Control and the Macau government, which have a say in operational decisions and financial practices. Wynn Resorts must adhere to strict regulations, including licensing requirements and financial disclosures. Any significant corporate transactions, such as mergers or acquisitions, require regulatory approval, and the company is obligated to maintain transparent records of its shareholders and beneficial owners.

 By the Numbers

Annual 10-K Report Summary for 2022:

• Operating revenues for Wynn Palace decreased by $472.7 million.
• Operating revenues for Wynn Macau decreased by $314.8 million.
• Operating revenues for Wynn Las Vegas increased by $628.5 million.
• Operating revenues for Encore Boston Harbor increased by $139.6 million.
• Net loss decreased due to gains from the sale-leaseback transaction of Encore Boston Harbor ($1.70 billion).
• Casino revenues decreased by 23.5%.
• Non-casino revenues increased by 30.3%.
• Total operating expenses decreased by $300.7 million.
• Gain from Encore Boston Harbor transaction was $182.0 million.
• Interest expenses increased due to higher average interest rates.
• Income tax expenses rose due to profitability in the US.
• Net loss attributable to noncontrolling interests increased.
• Adjusted Property EBITDAR showed declines at Wynn Palace and Wynn Macau.
• Adjusted Property EBITDAR showed increases at Las Vegas Operations, Encore Boston Harbor, and Wynn Interactive.
• Cash flow from operating activities decreased to $71.3 million (down from $222.6 million in 2021).
• Capital expenditures rose to $226.4 million.
• Share repurchase of nearly 3 million shares for $171.3 million.
• Unrestricted cash and cash equivalents at $3.65 billion.
• Revolving borrowing capacity of $836.9 million as of December 31, 2022.
• Intellectual property license fees expected from Wynn Macau SA: $75.2 million.
• $1 billion equity repurchase program authorized, with $628.8 million remaining.
• Future variable interest payments: $472.8 million over the next three years.
• Contractual commitments: $20.5 billion over the next five years.

Quarterly 10-Q Report Summary for Q3 2023:

• Operating revenues increased by 87.9% to approximately $1.67 billion.
• Revenue increases at Wynn Palace: $449.5 million.
• Revenue increases at Wynn Macau: $254.6 million.
• Casino revenues increased by 170.2% to around $972,453.
• Net loss decreased by 18.3% to $116,678.
• Total operating expenses increased by 70.7% to $1.6 billion.
• Casino expenses increased by 140.8%.
• Net interest income: $46.5 million.
• Income tax benefit: $2.7 million.
• Nine-month casino revenues at Wynn Palace: $1,054,007,000.
• Nine-month casino revenues at Wynn Macau: $649,627,000.
• Room revenues increased by $269.5 million.
• Food and beverage revenues increased by $128.5 million.
• Entertainment, retail, and other revenues increased by $98.4 million.
• Operating expenses for the nine-month period rose by 42.6% or $1,257,219,000.
• Weighted average interest rate increased from 5.20% to 6.08%.
• Interest income: $130.9 million.
• Foreign currency remeasurement loss: $19.8 million.
• Loss on derivative’s fair value: $3.3 million.
• Loss on debt financing transactions: $12.7 million.
• Net income attributable to non-controlling interests: $7.6 million.
• Adjusted Property EBITDAR for Wynn Palace, Macau, and Las Vegas operations all increased.

Stock Performance and Technical Analysis

Based on the technical indicators provided, the stock appears to be in a somewhat bearish phase, with certain signals suggesting caution for potential investors.

The current stock price is 7 percent above its 52-week low and 25 percent below its 52-week high, which indicates that the stock has seen better days but might also be off its lows, potentially indicating a period of consolidation or a base formation. However, the fact that the stock has remained relatively stable over the last month could be interpreted as a lack of positive momentum, especially considering the price has fallen by 11.44% in the last three months. This longer-term decline suggests that investors have been consistently selling the stock over the past quarter, which could be due to a variety of factors such as disappointing earnings, negative industry news, or broader market downturns.

The daily trading volume is slightly above its longer-term average, which might indicate a higher level of investor interest or activity in the stock than usual. However, the Money Flow indicators suggest that the stock is experiencing moderate selling pressure and is under distribution, meaning that more investors are looking to sell their shares than buy, which could lead to further downward price movement. The bearish Moving Average Convergence Divergence (MACD) value of -1.52 corroborates this, signaling that the short-term momentum is currently weaker than the long-term momentum and that the trend is towards the downside.

In summary, the technical analysis indicators suggest that this stock is currently not exhibiting strong bullish signals. Investors might want to exercise caution and consider a more defensive posture, perhaps waiting for more positive technical signals or a reversal pattern before initiating a long position. Alternatively, risk-tolerant investors might see the current weakness as a buying opportunity if they believe the stock is oversold and due for a rebound, possibly supported by positive fundamental factors not reflected in the technical analysis.

The ‘Bull’ Perspective

Wynn Resorts Ltd. (WYNN) - A Compelling Buy Amidst Challenges

Summary:

1. Robust Revenue Growth: Wynn Resorts has demonstrated a remarkable 87.9% increase in operating revenues, signaling a strong recovery trajectory.
2. Macau's Resurgence: Wynn Macau and Wynn Palace are pivotal in the revenue surge, with Macau operations bouncing back as travel restrictions ease.
3. Strategic Cost Management: Despite a net loss, Wynn Resorts has effectively managed to reduce this by 18.3%, showcasing adept cost control measures.
4. Diverse Revenue Streams: Non-casino revenues have also seen significant increases, indicating a successful diversification strategy.
5. Long-Term Potential: Wynn Resorts' long-term prospects remain favorable with the anticipation of the release of their deferred tax assets valuation allowance.

Elaboration:

1. Robust Revenue Growth:
   Wynn Resorts' remarkable revenue growth to $1.67 billion in the latest quarter is a testament to the company's resilience and potential for growth. This 87.9% increase from the previous year is not just a number; it's a strong indicator of the company's ability to bounce back from adversity, particularly the impacts of the COVID-19 pandemic. The company's focus on luxury and premium services has continued to attract high rollers and leisure travelers alike, resulting in a significant uptick in casino revenues by 170.2%. This growth is not just a spike but a sustainable trend as global economies reopen and consumer confidence returns.
2. Macau's Resurgence:
   The revenue surge from Wynn's Macau operations is particularly encouraging. With Wynn Palace and Wynn Macau contributing an additional $449.5 million and $254.6 million respectively, these figures represent a strong rebound in one of the world's largest gaming markets. As travel restrictions continue to ease and vaccination rates improve, Macau is poised to regain its status as a premier international tourist destination. Wynn Resorts' strategic investments in the region are well-placed to capitalize on this resurgence, despite the understandable anxiety around geopolitical tensions and travel policies.
3. Strategic Cost Management:
   The reduction in net loss by 18.3% is a clear indication of Wynn Resorts' strategic cost management. While operating expenses have surged due to increased business volumes and impairment charges, the company has shown its ability to navigate through these expenses while still making progress towards profitability. This adept management is crucial as the company faces various risks, including regulatory compliance and the potential impacts of ongoing litigation. The company's proactive approach to expense management will be key in mitigating these risks and improving the bottom line.
4. Diverse Revenue Streams:
   Wynn Resorts' increase in non-casino revenues – room revenues by $269.5 million, food and beverage by $128.5 million, and entertainment, retail, and other revenues by $98.4 million – highlight the company's successful diversification of revenue streams. This diversification is strategic, reducing reliance on gaming and positioning the company to capture a broader share of the tourism and leisure market. This approach also serves as a hedge against the volatility of casino revenues and the potential impacts of news headlines that may affect the gaming industry.
5. Long-Term Potential:
   Looking ahead, Wynn Resorts anticipates the potential release of their deferred tax assets valuation allowance, which is a positive sign of expected earnings growth. This forward-looking statement suggests that the company is not only navigating current challenges but is also setting the stage for future financial health. The company's long-term potential is bolstered by its strong brand, premier properties, and commitment to providing a high-quality experience for its guests.

In conclusion, while Wynn Resorts faces certain risks and challenges, the company's strong revenue growth, strategic cost management, and diversified revenue streams present a compelling case for investment. The company's ability to navigate the complexities of the gaming and hospitality industry, coupled with the resurgence of its Macau operations and long-term growth potential, make WYNN a stock to consider for those looking to add a resilient and forward-looking player to their portfolio.

The ‘Bear’ Perspective

Wynn Resorts: A Case for Caution in the Face of Apparent Recovery

Summary:

1. Macau's Fragile Recovery: Despite a surge in revenue, Macau's market remains vulnerable to policy changes and pandemic-related disruptions, which could adversely affect Wynn's profits.
2. Regulatory and Compliance Hurdles: Wynn's reliance on strict regulatory compliance presents significant risks, including potential fines and license revocations that could impact operations and investor confidence.
3. Litigation and Investigations: Ongoing legal challenges not only drain resources but also put the company's reputation and future earnings at risk.
4. Economic Sensitivity and Consumer Spending: Wynn's performance is closely tied to consumer discretionary spending, which is susceptible to economic downturns and geopolitical events.
5. Operational Risks and Concentration: A limited number of properties and reliance on premium customers create a concentrated risk profile, with potential for significant impact from localized events or customer behavior changes.

Elaboration:

1. Macau's Fragile Recovery:
   Wynn Resorts' recent revenue boost, largely attributed to its Macau operations, may appear promising, but investors should view this with caution. The 87.9% increase in operating revenues is not only a rebound from pandemic lows but also a figure that could be easily disrupted by policy changes or new health-related restrictions. Macau's government has a history of swift policy shifts, and with the ongoing global health crisis, there's no guarantee that the current revenue levels are sustainable. The region's strict entry and exit policies, along with potential flare-ups of COVID-19 cases, pose a persistent threat to Wynn's profitability, which relies heavily on Macau's stability.
2. Regulatory and Compliance Hurdles:
   Wynn's operations are under the microscope of various regulatory bodies, and the cost of compliance is high. The company must navigate a complex web of international, federal, and state regulations, where a misstep could lead to significant fines or even the loss of crucial gaming licenses. With a 33.4% increase in general and administrative expenses, it's clear that regulatory compliance is becoming more expensive. Moreover, the company's expansion into digital sports betting hinges on securing additional regulatory approvals, which are far from guaranteed and represent a substantial risk to future growth plans.
3. Litigation and Investigations:
   Legal disputes and investigations are a drain on resources and can distract from core business operations. Wynn Resorts is no stranger to such challenges, and the associated costs, both financial and reputational, can be steep. The negative publicity from legal battles can tarnish the brand's image, potentially leading to a decline in patronage and a negative impact on cash flows. Investors should be wary of the uncertain outcomes and costs associated with ongoing and future litigations.
4. Economic Sensitivity and Consumer Spending:
   As a luxury resort operator, Wynn is highly sensitive to fluctuations in consumer spending. Economic downturns, increased inflation, or geopolitical tensions can quickly alter consumer behavior and reduce discretionary spending on travel and leisure. The company's performance is a reflection of broader economic health, and with the current global uncertainties, including supply chain disruptions and potential conflicts, the risk of a sudden downturn affecting Wynn's bottom line is considerable.
5. Operational Risks and Concentration:
   Wynn's success is heavily concentrated in its few, high-end properties. While this allows for a focus on premium service, it also means that any localized disruptions, such as natural disasters or a decline in visitation due to travel restrictions, could have an outsized impact on the company's financial health. Additionally, the reliance on a limited number of high-rolling customers introduces volatility; a small shift in the preferences or behaviors of these clients can lead to significant revenue swings.

Conclusion:

In light of the recent headlines and the identified risks, Wynn Resorts Ltd. presents a precarious investment proposition. While the company has shown resilience in its latest quarterly report, the underlying risks associated with its operations in Macau, regulatory compliance, ongoing legal issues, economic sensitivity, and operational concentration suggest that the stock may not be as robust as it appears. Investors should exercise caution, keeping in mind that the current financial improvements could be quickly undermined by external factors that are beyond the company's control.