Deutsche Bank Disagrees With Wynn Bullishness: Removes Buy On Valuation And Fundamental Shortcomings

Wynn Resorts, Limited WYNN shares have surged 42 percent year-to-date. Deutsche Bank’s Carlo Santarelli downgraded the rating for the company from Buy to Hold, while raising the price target from $94 to $101. The analyst cited valuation and Macau fundamentals among the reasons for the downgrade.

Reasons For The Downgrade Call

Analyst Carlo Santarelli enumerated the reasons for the downgrade as:

1. Valuation: Wynn’s shares being up around 40 percent YTD leaves “little margin for error” and reflects an acceleration in Macau trends
2. Macau fundamentals: These have not really improved, while there are expectations of a mid-teens supply growth over the next couple of years. Moreover, visitor volume trends are negative “in a market that is becoming more mass revenue reliant,” the analyst wrote.
3. Lack of support to price target: Fundaments do not support a significantly higher price target.

Meaningful GGR Acceleration Unlikely

“WYNN’s fair share analysis effectively implies 3.6% growth in 2017, relative to 2015. Assuming 2016 is down ~5% (-13.3% YTD), 2017 would have to grow ~9% y/y,” Santarelli mentioned. While Wynn may be able to achieve this, although it appears difficult given the assumption of a flat VIP environment in 2017.

Mass GGR would need to grow 18 percent y/y in 2017, “despite being a function of visitation & spend per visit, neither of which are growing in light of new supply,” the Deutsche Bank report noted.