Wynn Resorts (WYNN -1.16%) stock has a history of both outperformance and underperformance, as its casino and hotel revenue has fluctuated with market conditions in its various regions. One thing is certain: The company's gambling resorts are some of the most impressive in the world, and the chart and background we'll examine show why this gambling stock could still be an investor favorite in the years to come.
Wynn Resorts stock history
Wynn Resorts went public in 2002, and its stock had risen pretty steadily up to the crash of 2008. However, the really interesting part of Wynn's stock history stretches from the start of the Macau boom around 2013, which helped the stock price to surge, and the following fall from grace through the first half of 2016. Here's what the stock has looked like since that time.
The stock's steep dive in 2014 was a result of the Chinese government's decision to put stricter limitations on visitation and total spending in Macau. The moves were meant to curb illicit activity, but it also curtailed the VIP gambling revenue in Macau of which Wynn's early success had been a product. Still, while the situation in Macau is volatile, it could have plenty of long-term growth left. Meanwhile, Wynn is also making improvements to its Las Vegas resorts and making other big bets in other regions as well.
Wynn Resorts casino performance
Wynn's casinos are currently in two main segments -- Macau and Las Vegas. Here's how those segments contribute to Wynn's total, which also includes a small "corporate and other" segment that contributes to total operating income.
| Segment | 2016 Q4 Revenue | % of Total Sales | 2016 Q4 Operating Income | % of Operating Income |
|---|---|---|---|---|
| Macau | $917.1 million | 71% | $84.8 million | 61% |
| Las Vegas | $383.3 million | 29% | $40 million | 29% |
Data source: Wynn Resorts 2016 earnings report
Even after the drop in gambling revenue in Macau since mid-2014, the segment is still by and large Wynn's bread and butter. Though the market there caused a lot of pain for Wynn investors in the past two years, Macau continues to look like a bright spot for Wynn's future. January was the sixth straight month in year-over-year gambling increases in gambling revenue in Macau, following 26 straight months of declines, and the mass-market segment there shows signs of strengthening further in 2017.
The new Wynn Palace Cotai opened in Macau in August 2016 and already looks to be performing reasonably well amid Macau's still soft climate. The new resort is already running at nearly 90% occupancy at its hotel as of the fourth quarter, and it has an average daily rate (ADR) of $272, which is substantially higher than the rates of most of its competitors.
Wynn Palace in Macau. Image source: author.
Of course, Wynn has some stiff competition there -- Melco Crown and Las Vegas Sands both opened new casinos in Macau not far from the Wynn Palace in 2016, and MGM Resorts International (MGM 0.90%) will open its first Cotai resort just across the street in mid-2017. Still, Wynn Palace's early results are encouraging, and a rising tide in Macau could lift all ships there.
While smaller by percentage of sales, Las Vegas is still vitally important for Wynn Resorts. The company's Wynn Las Vegas has become a beacon of success in Vegas, with one of the highest occupancy rates and ADRs of any resort in Vegas. Still, Wynn's Las Vegas revenue declined 2% year over year in the fourth quarter, even though hotel revenue rose.
Wynn plans to continue driving non-gambling growth in Las Vegas, and CEO Steve Wynn made waves in April 2016 when he announced the company's plan to completely overhaul its flagship Las Vegas property by ripping up its famous golf course and replacing it with a giant clearwater lagoon. The proposed plan includes water sports on the lagoon, a white-sand beach around its perimeter, and even fireworks every night from an island in the middle. The company also plans for another 1,000-room hotel overlooking the water, and right now it's calling the development Paradise Park.
Again, Wynn faces stiff competition in Las Vegas. MGM Resorts already dominates the Las Vegas strip in terms of number of properties and hotel rooms, and it's also busy overhauling its resorts and adding more non-gambling entertainment options. In addition, Resorts World Las Vegas is a massive new Asia-themed resort directly across the street. Even though the resort is very slowly being constructed, it should be open before Paradise Park.
Wynn Resorts bets on the future
Finally, there are Wynn's bets on future development in new regions. Wynn is currently preparing construction for Wynn Boston Harbor, outside downtown Boston. Wynn plans to pay $2 billion to build out the resort, which will feature a casino, hotel, waterfront boardwalk, and convention space on its 33-acre plot. The resort is planned to open in 2019.
Then there's Japan, which recently voted to legalize casinos in the country after years of debate. Analysts believe Japan could be one of the most lucrative markets yet for casinos, and many are willing to invest billions there if allowed, including Wynn. There's certainly no guarantee that Wynn would win one of the limited number of licenses, but if so, expect the company to begin construction as soon as allowed.
Wynn's stock is still less than half of its mid-2014 high. While the stock faces increased competition and substantial risk in both Macau and Las Vegas, its new resort idea in Boston is untested, and it's too early to see what its chances are for a resort in Japan, the company does look to be doing the right things to build for future growth. The stock is not cheap right now, trading at 47 times earnings. Still, its forward-looking P/E is just 20 times earnings, and once some of these big bets start paying off, investors could be rewarded long-term.
