Wynn Resorts Remains Neutral - Analyst Blog

We maintain our Neutral recommendation on Wynn Resorts Limited (WYNN), a renowned developer and operator of high-end hotels and casinos.

The company, based in Paradise – Nevada, reported third quarter 2010 earnings, below the Zacks Consensus Estimate, but results improved on a year-over-year basis, driven by higher-than-expected revenues. Net revenues surged 30.1% year over year and also outpaced the Zacks Consensus Estimate due to solid results at its Macau operations.

Net revenues at Wynn Macau were up 49.7% year over year, primarily driven by a significant increase in table games turnover in the VIP segment. However, Wynn Resorts' revenues from Las Vegas operations increased marginally by 3.1%, due to persistently challenged conditions in Las Vegas and remodeling of some rooms.

We remain encouraged with the company's strong brand name, a healthy balance sheet, relatively low capital requirements and the ability to execute in a difficult operating environment. We also remain optimistic on the company based on its expansion strategy in Macau.

Wynn Resorts has opened Encore at Wynn Macau and also has a potential Cotai project in the pipeline. We anticipate that the expansion will significantly add to the company's top line going forward. Additionally, Wynn Resorts is experiencing an increase in demand with a gradual recovery of the global economy. Business travelers are returning, with leisure travel picking up as well.

However, we remain cautious on the stock as the company is entirely dependent on its four properties in Las Vegas and Macau. Moreover, Wynn operates in a highly competitive Las Vegas and Macau marketplace and with more hotels opening and promotional activities increasing in Macau and Las Vegas, this could also result in excess supply and reduce the company's market share.

The recovery in the Las Vegas market is also expected to be slow due to a challenging domestic economy. Additionally, any changes in government policies, primarily in overseas countries, related to the tax rates and gaming regulation could be a headwind for the company. The growth prospects are limited as only the Cotai Project is in the pipeline, which is expected to open by 2015.  Wynn Resorts' primary competitors are Las Vegas Sands Corp. (LVS) and MGM Resorts International (MGM).