Wynn Resorts (NASDAQ:WYNN) looks like a valuable play. With shares down around 28% from their 52-week high of $249, WYNN shares are currently trading at a price-to-earnings ratio below the industry average. With impressive growth rates in Las Vegas in the most recent quarter, as well as a new megaresort underway in Macau, Wynn Resorts might be a good bet.
Winning in the U.S., but not enough
One major highlight of Wynn Resorts' most recently reported quarter is the strong performance the company posted from its Las Vegas operations. Wynn's Las Vegas revenue growth, up 9% year over year, was the highest of any of the major gaming companies during the same period. The company posted adjusted EBITDA for Las Vegas properties more than 25% higher than the same quarter a year ago.
However, while those growth rates are impressive, the total income the company received from its domestic operations, at $133 million, is still well below that posted by MGM Resorts at $328 million. The reason is that MGM has made a much bigger bet on the U.S. with 10 properties in Las Vegas and properties on the East Coast as well. MGM Resorts gets around two-thirds of its global revenue from the U.S.
Wynn Resorts' Las Vegas operations feature two luxury hotel towers, Wynn Las Vegas and Encore. Though Wynn did recently win the right to start building a resort in Massachusetts, which could help the company gain more domestic revenues in the coming years, the company is still very heavily reliant on Macau, where unfortunately it is getting hammered right now.
The better bet in Macau
The main reason that shares of Wynn are down so far this year is the lowered gross gaming revenue growth in Macau in the last six months. While Macau has continually posted incredible profits in the last few years leading up to this summer, the VIP segment of Macau gamers has recently dropped dramatically for multiple reasons including stricter government oversight of the third -party operators that bring high-net-worth players to Macau. Because Wynn had much of its Macau revenue coming from this VIP segment, its share price has been punished the last few months.
In the long term, Macau still appears to be a great bet, mainly due to the steadily growing mass-market segment that will replace the VIP segment and will provide more long-term and steady gains for the casino companies operating there. While Wynn is betting on this segment, and is building a new resort in Macau with added rooms and mass market amenities, it remains, at most, the second best bet on this trend behind Las Vegas Sands. Based on the number of hotel rooms, and the trend toward mass-market revenue growth already in place, Las Vegas Sands stands out as the clear winner on mass-market growth in Macau.
Each major gaming company is building a new resort on Macau's Cotai Strip with the mass market in mind. Wynn's new $4 billion Wynn Palace on the Cotai Strip, expected to open early 2016, looks impressive with 1,700 hotel rooms, a massive casino, a "performance lake," and much more. However, Las Vegas Sands is making a bigger bet with what promises to be an even more impressive resort. Sands' new Cotai resort, the Parasian, is slated to open a few months earlier than Wynn Palace, and it will include over 3,000 new rooms in multiple hotels, another impressively large gaming floor, and a 50%-scale replica of the Eiffel Tower nearly 500 feet tall (150 meters).
The number of annual visitors to Macau jumped from 11.5 million in 2002 to over 29 million in 2013, a nearly 150% rise. Because of that, casino companies have been increasing the number of hotel rooms available on the island. As of last year, there were 28,082 hotel rooms in Macau, according to the government's statistics bureau. At the time, Las Vegas Sands operated 25% of all hotel rooms in Macau, totaling over 7,000 rooms. With an added 1,700 rooms coming from the new Wynn Palace Cotai, Wynn will still be well below the number of rooms offered by Sands, which is one more way Las Vegas Sands is a much better bet on Macau's long-term mass market growth.