Macau Still Risky, But Morgan Stanley Sees 30% Upside In Wynn Resorts

Morgan Stanley’s Thomas Allen maintained an Overweight rating on Wynn Resorts, Limited WYNN, with a price target of $120.

Upside Potential

While pointing out that the company had navigated the deteriorating Asian gaming market well and that the market appeared to be at an inflection point, Allen mentioned that Wynn Resorts’ valuation and share gain potential made the stock attractive, with the stock expected to have 30 percent upside potential.

With the ongoing stabilization in Macau and expectations of the company moving from double digit EBITDA decline to double digit EBITDA growth over the next six months, Allen believes that “stock momentum can continue given Wynn's long-term potential.”

The analyst also pointed out that although the company was highly leveraged at present, it would turn into a “cash flow machine” with the opening of Macau Palace and Boston.

Market Share Expectations

Allen believes that expectations of Wynn Resorts’ market share growing from 10 percent to 13-14 percent following the opening of Wynn Palace could prove conservative, given the company’s history.

“The original Wynn Las Vegas opened in April '05 and in 2 years, had garnered 9 percent market share, while Steve Wynn's prior luxury properties, Bellagio and The Mirage, maintained their 15 percent and 8 percent share, respectively,” according to the Morgan Stanley report.

In addition, the consensus forecasts and estimate call for low to mid-single digit market growth in Macau for 2017 and beyond.