Wynn Resorts Ltd. Earnings: How Now, Macau?

Macau has kept Wynn climbing, but how long can the good times in the Asian gaming capital last?

Apr 17, 2014 at 11:02AM

On Monday, Wynn Resorts (NASDAQ:WYNN) will release its quarterly report, and recently, investors have started to wonder how much further the casino giant can grow. Although Macau has lifted Wynn's fortunes over the years, competition from Las Vegas Sands (NYSE:LVS), Melco Crown Entertainment (NASDAQ:MPEL), and other players in the gaming industry has only gotten fiercer recently, and Wynn's share price has suffered as a consequence along with the potential for an economic slowdown in China.

At one time, Las Vegas was the center of the gaming world, and Wynn Resorts has made efforts to establish a solid presence there with its namesake casinos on the Las Vegas Strip. But from a profitability standpoint, Macau has been far more lucrative for Wynn as well as Las Vegas Sands and Melco Crown. Wynn has been held back to some extent by failing to establish an early place on the Cotai Strip, but that didn't hold its stock back last year. Still, can shareholders claim even bigger wins in 2014? Let's take an early look at what's been happening with Wynn Resorts over the past quarter and what we're likely to see in its report.

Wynn
Source: Wynn Resorts.

Stats on Wynn Resorts

Analyst EPS Estimate

$2.06

Change From Year-Ago EPS

1.5%

Revenue Estimate

$1.49 billion

Change From Year-Ago Revenue

8.1%

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Will Wynn earnings hit the jackpot this quarter?
Analysts have gotten a lot more optimistic in recent months about Wynn earnings, raising their first-quarter estimates by almost 10% and adding $0.60 to $0.65 per share to their full-year projections for 2014 and 2015. The stock, though, has given up ground, falling 2% since mid-January.

Wynn's fourth-quarter earnings report showed just how vital Macau has been to the company's overall success. Revenue jumped 18% from the year-ago quarter, leading to a near-doubling of net income. Despite fears that Las Vegas Sands and its Venetian Macau on Cotai have been stealing Wynn's players from the older Macau Peninsula area, Wynn Resorts revenue from Macau soared almost 25%, with solid gains both from VIP and mass-market players.

Given Macau's success, Wynn Resorts hopes that its Wynn Palace resort on the Cotai Strip will keep its growth accelerating. Currently, Wynn expects the Cotai casino to open in early 2016, having moved up its original projected opening date to try to take advantage of the new area's reputation before it cools off. That could correspond well with plans to improve rail transportation both within Macau and from mainland China, which Wynn and its rivals hope will boost overall traffic and be a win for the entire industry there.

With Macau so important to Wynn Resorts and its peers, it's not surprising that even a hint of weakness can cause ripples throughout the industry. Despite signs that year-over-over revenue during the first quarter rose substantially, one analyst pointed to a dramatic drop in average daily revenue in early April compared to early March, and that was enough to pull down shares substantially. Similar concerns have been a big part of what pulled down Wynn stock by almost 20% from the first week of March to its recent lows.

Another threat that Wynn faces is the prospect of other gaming centers rising throughout Asia. Las Vegas Sands has already led the way with a lucrative resort in Singapore, which has demonstrated its ability to bolster tourist traffic in the region. With Japan seeking to open itself up to casino gaming, Wynn Resorts will have to work hard to ensure that Las Vegas Sands doesn't establish a similar first-mover advantage that could hurt Wynn's chances of matching up to its rival.

In the Wynn Resorts earnings report, watch to see how the casino company's profits are distributed across its geographical reach. With so much attention on Macau, surprisingly good results in Las Vegas or elsewhere could be a catalyst to a rebound for Wynn's much-beleaguered shares.

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