Is Wynn Resorts Really Worth More Than $110?

If Macau gambling is back, then Wynn Resorts (WYNN -0.47%) may be able to double down on its growth prospects, which would dovetail nicely with its plans to open a second casino on Macau's Cotai Strip.

Casino revenue on the Chinese gambling mecca rose 3.2% in October, hitting a record 27.7 billion patacas, or $3.5 billion. That follows a 12% increase the month before marking a recovery on the island from the anemic 1.2% increase realized in July, after a typhoon blew threw. Even so, it was less than what some analysts had predicted.

Yet it wasn't Wynn's efforts that led the rise higher, but rather Las Vegas Sands' (LVS -0.63%), which itself opened up the next phase of its latest Cotai gambling house. That it came ahead of the Golden Week holiday helped propel revenues to new record levels as gamblers flocked to the island.

Wynn itself saw third-quarter revenue drop 4% generating 3% less in profits as VIP bettors scaled back playing at the casino. Even so, VIP table game wins exceeded Wynn's expectations and that recorded a year ago. So can Wynn Resorts come up snake eyes? Let's take a closer look.

Wynn Resorts snapshot

Source: FinViz.com. N/A = not available.

Highfalutin honeys
Over the past few years, Macau has proved to be the salvation for casino operators who watched the Las Vegas market collapse along with the economy and the housing market. Like rivals Sands and MGM Resorts (MGM -1.24%), Wynn now derives most of its revenues from Macau, nearly three quarters of the total.

Viva Las Vegas!
Yet the third quarter marked something of a reversal of fortunes as Las Vegas properties enjoyed an 11.8% jump in revenues as the U.S. economy started to show some life once again. It also showed up in the results of Caesars Entertainment (CZR), which has no presence in Macau, but is spread across various gambling centers here in the United States. But higher revenues from Las Vegas (and the Illinois-Indiana region) couldn't offset the lower results in Atlantic City, Louisiana-Mississippi, Iowa-Missouri, and elsewhere.

Conversely, Melco Crown Entertainment (MLCO 0.64%), which is wholly exposed to Macau, saw its revenues fall 4% for the quarter, though it came in ahead of analyst expectations .

Wynn likes the high stakes nature of the market and has positioned itself as a relatively high-yielding stock with bonus payouts in the form of special dividends. The company plans to pay a $1-per-share quarterly dividend beginning next year, and it just announced a special $8-per-share dividend payable on Nov. 20. It has a history of paying a high dividend when cash levels allow, and its decision to terminate a credit agreement gave it an additional $700 million to use as it saw fit. As has often been the case, it's returned that money to shareholders.

Daddy needs a new pair of shoes
For that reason I don't dislike Wynn at current valuations, parked as it is midway between many of its rivals, though with its enterprise value going off at 16 times its free cash flow, I could wish for a better entry point. Still, the expansion on the Cotai peninsula gives it good growth prospects in a region that can't keep up with demand at the moment, which, when coupled with a conservative management outlook that keeps its shareholders' interests in mind, makes Wynn Resorts a good long-term investment.

I've rated Wynn to outperform the market indexes on Motley Fool CAPS, the 180,000-member-driven investor community where informed opinion is translated into stock ratings of one to five stars. The casino operator's lowly two-star rating, however, suggests quite a few still need to be sold on the recovery in Las Vegas.

By making either a bullish or bearish CAPScall I hold myself accountable for the opinions I express here, but you can tell me in the comments section below whether you agree that Wynn Resorts north of $100 a share is too much of a risky bet.