On Jul 4, 2014, we issued an updated research report on Wynn Resorts Ltd. (WYNN).
On May 1, this leading casino operator posted impressive first quarter results wherein both earnings and revenue beat the Zacks Consensus Estimate. Adjusted earnings of $2.32 in the first quarter grew 14.3% from the year-ago quarter. The upside was driven by 9% growth in the top line as strong gambling revenues from Macau operations were offset by a relatively softer performance in Las Vegas.
Wynn generates over 70% of its revenues from Macau resorts and it has contributed immensely to Wynn’s top line over the past few quarters. In addition, Wynn Resorts has embarked on a project in Cotai, Macau in order to expand its operations in the region. We remain optimistic about the project based on the long-term growth potential in Macau.
Given its strong brand name, we believe that Wynn Resorts is better positioned to command a premium rate relative to the overall gaming and lodging industry.
However, Las Vegas revenues declined in the first quarter of 2014, despite increasing year over year in all quarters of 2013, due to a sluggish domestic market. In order to boost performance in Las Vegas, the company has remodeled the rooms at its properties and the baccarat pit. Though tourism in Las Vegas has not yet reached the pre-recession level, it is on its way to recovery.
According to the Center for Business & Economic Research, visitation in Las Vegas will increase 0.9% and 2.5% in 2014 and 2015, respectively, after experiencing a decline of 0.2% in 2013. This improving visitation pattern in the Las Vegas market will prove be beneficial for the company in the coming quarters. The company foresees development opportunities in other domestic markets like Florida and Massachusetts as well.
Further, there are a few headwinds that would adversely affect revenues from Macau in the future quarters, which include China's crackdown on illegal money transfers, credit growth concerns, potential for tighter restrictions on visas and an impending smoking ban in casinos. Also, stiff competition and limited diversity are major concerns.
Wynn Resorts presently has a Zacks Rank #3 (Hold). Isle of Capri Casinos, Inc. (ISLE) is a better-ranked stock in the same sector with a Zacks Rank #2 (Buy). Investors can also consider Columbia Sportswear Co. (COLM) and Michael Kors Holdings Ltd. (KORS), stocks from the consumer discretionary sector. While Columbia Sportswear carries a Zacks Rank #1 (Strong Buy) and Michael Kors Holdings carries a Zacks Rank #2.
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