A rendering of Wynn Palace, which is under construction in Macau. Image: Wynn Resorts.

Shares of Wynn Resorts Limited (NASDAQ:WYNN) have been in freefall for the past year as the market watched Macau's gaming market take a nosedive. Wynn was hurt more than competitors like Las Vegas Sands because it used to get a majority of its revenue from VIP clients than most competitors. When the corruption crackdown happened in China VIP traffic slowed dramatically and the collapse of the junket market, which provided lines of credit for gamblers, only made things worse.

But as 2016 begins there are some positive catalysts brewing for Wynn Resorts. Even Steve Wynn has been buying stock so now may be a good time for investors to take another look at this gaming stock.

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Wynn Palace could change everything
Over the past year, Wynn Resorts has generated $1.26 billion in EBITDA, a proxy for cash flow coming from casinos. When you add up the company's market cap and net debt, or enterprise value, of $12.6 billion the company is valued at 10.1 times trailing EBITDA. But it's about to open a resort that will change the company's fortunes.

Wynn Palace is a $4.1 billion resort in the Cotai region of Macau, its first foray into Cotai. The Macau Peninsula, where Wynn Macau is located, is the older region of Macau and you can look at Cotai analogous to the Las Vegas Strip and look at the Macau Peninsula like Downtown Las Vegas. In other words, opening a resort on Cotai is a big deal for Wynn.

What's important to think about with Wynn Palace is that Cotai is typically more profitable than resorts on the Macau Peninsula and Wynn Resorts has historically outperformed its neighbors in all gaming markets. As you can see below, Wynn Macau makes more money than neighbor Sands Macau and Cotai resorts are far more profitable than Macau Peninsula properties.



EBITDA (ttm)

Wynn Macau

Macau Peninsula

$789.7 million

Sands Macau

Macau Peninsula

$251.5 million

Venetian Macau


$1.10 billion

Sands Cotai Central


$710.9 million

City of Dreams


$864.3 million

Source: Company earnings releases.

I've also outlined in the past that Wynn Las Vegas makes a lot more money than any of its Las Vegas Strip neighbors. If history repeats itself and Wynn can outperform neighbors on Cotai the company could make over $1 billion in EBITDA, or more, from the moment it opens. That could make the stock a steal for investors buying today.

How Wynn Resorts doubles
If Wynn Palace indeed generated $1 billion in EBITDA annually the company would be valued at an EV/EBITDA multiple of just 5.6 at today's stock price. If the stock doubled it would still have an EV/EBITDA multiple of just 8.3, a lower multiple than where any of the major gaming companies trade today.

Further upside could come if Macau goes from contraction to growth in 2016. The Macau gaming market appears to be bottoming and by the end of the year it's possible a turnaround begins. That could push all gaming stocks higher, but would be a boon for Wynn Resorts given the opening of Wynn Palace.

There's no guarantee Wynn Resorts stock will double in 2016, but you can see above that there's a lot of upside potential. Given the decline in Macau over the past year there's also risk, so this isn't a bet for all investors to take. At the end of the day, I think that balance of risk and reward looks very attractive at today's stock price.