Wynn Resorts: Soft Third Quarter Presents Buy On The Dip Opportunity For Those Who Know The Stock

seekingalpha2024-11-20

The decline in Wynn shares since "soft" 3Q results opens up an opportunity to buy undervalued assets.The actual numbers cited in 3Q are marginal declines that fit the historic trading pattern of the ...

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Our buy on the dip call: Buy toward a price point of $118. Nov. 15 stock up 8.7% on news of Tillman Fertitta increasing stake to 9.9%. General consensus: Not presaging a takeover.  We take a contrarian view, believing that Fertitta has a keen eye for casino valuations as an owner of casinos and sports betting sites. The trading range of Wynn has sloshed around in a 52-week range between $71.63 and $110. Its P/E in my view has to be more than interesting to industry veteran activists like Fertitta who know the lay of the land after decades. He understands that Wynn occupies a strong market share of the upscale gambling customer from the slot players all the way up to top VIPs for decades. And sees the returns over time as superior to many peers despite periodic earnings issues. Data by YChartsAbove: The key to max returns on this stock historically is its resilience despite periodic runs of low hold percentages related to VIP wins. But Wynn has built a premium on table games. Yet its average Revpar is always among the highest among peers. Sumitomo Trust was also an active buyer recently, raising its stake by 7,850 shares valued at $18m. Regardless of a so-so 3Q, I sense gathering bullishness among many investors who may never have been in the stock. P/E: At 11 with a market cap at $9.9b plus an EPS forecast of $4.87 supports my buy on the dip strategy now. Just ahead: Goldman Sachs expects that Macau GGR will hit $29b for this year, moving to $30b in2025, or an impressive recovery of 82% of its pre-COVID performance of $37b. Expansion of VIP gaming areas in both Wynn Macau properties already underway and longer-term major capex in the $450m range to build an events center and \"must see\" production show. Add the prospects for a $5b casino resort in the UAE's Marjan Island that management believes could generate $1.5b a year from its target market of top shelf VIP customers from the Gulf as well as globally. Wynn will have first mover advantage and a long history of customer knowledge of Mideast VIPs.   wynnAbove: Forecast opening in UAE in 2027, the $5b resort is expected to generate $1.5b in casino revenue and accretive EBITDA within 18 months. In more immediate quarters ahead we see the \"soft\" 3Q24 earnings have taken a much higher toll on the share price. Historically, Wynn has led peers substantially at the top end of the VIP business. Because of the volatility of that level of play, wider swings in hold percentages are sometimes key reasons for a decline in table game win. This time it was negative $20m. Also this quarter, Las Vegas results indicate a slowdown in the recovery curve, part of the decline in gaming made up by gains in hotel revenue and slot handle. More meaningful was the year-over-year total drop in tables, down 4.4%. I believe this was among the key reasons Mr. Market's traders got antsy. Long-term holders of Wynn shares understand how the dynamic of its revenue streams vary but agree that historically the reasons the shares have always traded at a huge premium to even its strongest peers.   googleAbove: Wynn stock forecasts remain strong. Premise: Over the long trading history of WYNN through which I have been a close observer I have likened it to a prism that coruscates a spectrum of both brilliant colors and passing whites. Early on I was a direct competitor in a fierce, dog-eat-dog Atlantic City market. As the top marketing operations executive for Caesars, I went head-to-head with Steve Wynn. No easy task. We became friends in the process. I learned casino marketing from the master, listening to his penetrating analysis of what drove gamblers toward one casino vs. another. A bit of remembered Wynn wisdom paraphrased from a conversational walk down the AC boardwalk one sunny, brisk autumn morning.  Me: \"We all have the slot machines, we all have tables, rooms, overpriced snooty restaurants, spas, suites - getting big play comes down to the one-on-one key employee relationships - always. Agree?\" Steve: He stops, turns to me. He raises his hands in a measuring span. \"Below that Klein, whether you have a quarter slot player or a guy with a $500,000 line, the motivation or lack of it is the same. You have to have, whatever it takes, to move the guy from here (nodding to his one hand) to here) he moves is other hand wider spanned.\" \"From sitting on his rear in the living room, to getting in the car, driving to the highway, or the airport and land at your front door. Not to your competitor's front door - but yours. Igniting the process is the entire secret sauce of the casino business. And the magnet is always the same: Your best marketing is in and on your walls. The more you spend on the joint, the less you need to pay the world to sell your story.\" Amen. That set the stage for the next phase: The Kerkorian Mirage buy from Wynn in 2000 for $4.4b and the opening of the ultra luxe Bellagio in 1998. Around 2000, the market's love affair with Wynn went cold. Between a rough adjustment when they'd left Atlantic City in 1987, in the Mirage and Treasure Island projects, plus Wynn spending hundreds of millions on his private art collection hanging on Mirage walls, the sell signal was hot. Add the widespread belief that Wynn had overspent on the Bellagio at $1.6b. Still active in inside the business, I kept my eye on Wynn shares confident a big upside awaited those who really understood the company and its volatility. I bought and sold a nice position and it was a great contributor to the college funds of my three boys.  More important, the recovery from the Kerkorian lows proved what I had learned about Wynn: It was always resilient because Mr. Market still contained enough fans of the stock to help build its recovery. The stock hit an all-time high back in 2014 at $221.95, flush with strong performances both in Las Vegas and Macau. Although the post COVID recovery surge may now be over, the fundamental asset value of Wynn's five properties has proven to be superior money-makers over time. The 3Q dip is just that. Opening a $16 gap between its pre-earnings expectations vs. the flat realities is before what I see as a good 4Q coming in markets poised to sustain growth.  Never bet against Steve Wynn or that part of his legacy built into his now undervalued assets. If you can buy those assets at $90 now, they present solid value. No, this is not yet another nostalgic paean to Wynn. But it does stress how his rare insights of the developing years still brings value to today's stock.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.30.2","shortVersion":"4.30.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2484749099"}