Shares of Wynn Resorts (WYNN 4.15%) nearly doubled in 2017, leading the major gaming stocks on the market. Macau was a point of strength, but Wynn has also outlined an aggressive growth plan that could drive the company for the next half-decade.
For investors, it's worth looking back on what made 2017 such a good year and consider whether conditions are right in 2018 to see another bump in the stock.
Image source: Getty Images.
Macau's gaming market jumped
The tide lifting all of Macau's boats, or casinos in this case, is Macau's gaming revenue overall, which jumped 19.1% in 2017 to $33 billion. With more money to go around, it's natural that gaming stocks would rise.
Wynn Resorts also benefited from having a full year of operations at Wynn Palace, the company's newest property in the Cotai region of Macau. But it's the numbers within Macau's growth that really drove Wynn's shares higher last year.
Wynn took market share
While growth in Macau is good, Wynn Resorts was a huge beneficiary of having most of that growth come from the VIP segment of the market. Following is a chart of VIP and mass-market baccarat play, which accounts for nearly 90% of all gambling in Macau. Mass-market play was up just 9.6% in 2017, while VIP play was up 26.7%.
Data source: Macau Gaming Inspection and Coordination Bureau. Chart by author.
The distinction is important for Wynn because the company caters to high-end gamblers. When the VIP market dried up in 2014, it was Wynn that took the brunt of the impact, and now that the VIP market is recovering, it's seeing the benefit as well. Market share gains in a growing Macau gaming market are supercharging Wynn's stock performance.
Conversely, Las Vegas Sands (LVS 1.25%) caters to mass-market players, and it lost market share in 2017. For the first time in a few years, Wynn Resorts' position serving the VIP market was advantageous last year.
Expansion plans are moving forward
Wynn is currently constructing its next megaresort, the $2.4 billion Wynn Boston Harbor just outside downtown Boston. When it opens in mid-2019, the property will give Wynn a more diverse geographic base and a valuable location in a major East Coast city with very little gaming competition.
The next project on the horizon is the development of the golf course behind Wynn Las Vegas. The company plans to build a hotel tower, convention space, and a lagoon that will have entertainment activities and shops on a surrounding beach. Budget and potential revenue impact from the project haven't been released, but this will be an addition meant to leverage the existing infrastructure at Wynn Las Vegas to churn out more cash flow.
As these projects moved forward in 2017, they ensured that Wynn Resorts has a strong growth pipeline. That's important for investors in the gaming industry, who are always looking for new growth opportunities.
Will Wynn Resorts stock continue soaring in 2018?
It's unlikely Wynn Resorts stock will double again in 2018, but there are some factors that could keep it moving higher. The first is growth in Macau, which needs to continue on an upward trajectory again this year. If revenue moves south, we can expect Wynn's stock to do the same.
On a company level, look for Wynn Palace to begin performing better as construction around the resort and connections to the light rail and other casinos in the area are completed. It was commendable that Wynn Palace generated as much as $500 million in quarterly revenue while being surrounded by construction in 2017, but we should see both revenue and EBITDA, a proxy for cash flow, increasing significantly as construction subsides. I'm watching for $250 million in quarterly EBITDA as a mark I think the resort can hit.
Given the current trends in gaming, I think Wynn Resorts is well positioned to be a big winner again in 2018. That's why I'll keep my thumbs-up pick on MyCAPS this year.
