Wynn Resorts' (WYNN -1.76%) growth phase continued in the third quarter, driven by improving performance at Wynn Palace in Macau. The $4.4 billion property is finally starting to pay off the way Steve Wynn hoped, despite construction surrounding the property.
On top of the properties already opened, Wynn is plotting its next phase of growth, this time in Las Vegas. Just after the new year, the company will break ground on a new hotel tower, convention center, and entertainment complex. We may be entering a major growth phase for Wynn Resorts.
What the third quarter looked like
Overall, third-quarter revenue jumped 45.3% to $1.61 billion, adjusted EBITDA rose 54.8% to $473.0 million, and net income came in at $79.8 million, or $0.78 per share. The addition of a full quarter at Wynn Palace, which was open only 40 days in the third quarter of 2016, helped drive the growth figures, but all of the company's properties are performing well right now.
Wynn Macau, the older resort on the Macau Peninsula, had a 15.3% revenue increase to $597.4 million, and adjusted property EBITDA -- a measure of cash flow from a resort -- rose 21.3% to $183.2 million. A 22.2% increase in VIP drove the improved results, consistent with Wynn's reliance on high rollers for its revenue.
Wynn Palace reported revenue of $555.3 million and property EBITDA of $138.2 million. For a comparison, VIP play exceeded Wynn Macau slightly, but mass-market and slot play fell just short of levels at Wynn Macau. The difference could be driven by the difficulty in getting to Wynn Palace, which is still surrounded by construction, including MGM Resorts' (MGM -0.75%) Cotai property across the street. When MGM Cotai and the light rail are complete, this should be a destination resort for VIPs and mass market alike, driving EBITDA toward $1 billion annually.
In Las Vegas, revenue rose 7.6% to $459.6 million and property EBITDA jumped 17.6% to $151.5 million. A higher-than-expected win percentage at table games helped results; without it, there would have been just a modest single-digit gain.
The next phase of Wynn Las Vegas
Most of the conference call was focused on the upcoming construction in Las Vegas. The project, once called Paradise Park, will include a 1,500-room high rise, an expansion to the convention center, a lagoon, an outdoor pavilion, and a zip line, among other entertainment facilities. Steve Wynn is clearly excited about adding facilities that will monetize the space behind Wynn Las Vegas, which was somewhat wasted with a golf course that looked good but made very little money.
Wynn Boston Harbor also continued its progress and is expected to open in mid-2019. The property will cost a whopping $2.4 billion, but it gives Wynn Resorts its first location on the U.S. East Coast.
With these two projects and more growth expected from Wynn Palace as Cotai's infrastructure projects improve, the growth at Wynn Resorts has just begun.
Wynn Resorts may still be a value
The $473 million of EBITDA indicates an annual EBITDA run rate of $1.9 billion, with a lot of growth opportunities ahead. Given Wynn's $6.9 billion in net debt and $14.6 billion market cap ($21.5 billion enterprise value), the company isn't cheap for investors, with an enterprise value/EBITDA ratio of over 11. But the growth that's ahead and Steve Wynn's history of developing leading resorts leads me to think this stock still has a lot of room to grow, which is why I'm keeping my thumbs-up CAPS call. Wynn Resorts still has a bright future in the gambling industry.