With shares of Wynn Resorts (NASDAQ:WYNN) down 16.30% year-to-date while the S&P 500 is up 17.63%, it’s easy to understand why some investors are leery of the gaming stock — apprehension amplified by the macroeconomic climate in China.
Weakness in China’s economy — the world’s second-largest — is a credible reason for market participants avoid Chinese stocks and Macau gaming names such as Wynn Macau. However, Stifel analyst Steven Wieczynski argues that investors are currently ascribing no value from Macau or the operator’s United Arab Emirates (UAE) project to the stock. That scenario is “ridiculous,” says the analyst.
”We do believe current trading levels of WYNN shares are essentially pricing in almost zero value for their Macau assets (as well as their UAE project), which we believe is way too pessimistic/Draconian,” wrote Wieczynski in a new report to clients.
The analyst added that while he lowered estimates on Wynn’s Las Vegas and Macau integrated resorts, he views the stock as attractive and recent weakness as a potential buying opportunity. He reiterated a “buy” rating while paring his price target to $103 and $121. Even with that reduction, the new forecast implies upside of about 35% from Thursday’s close.
Wynn, Other Macau Stocks Are Deeply Discounted
For the better part of five years now, Wynn Macau and shares of the other concessionaires the Special Administrative Region (SAR) have struggled and those woes intensified this year amid lethargy in the Chinese economy and worries ahead of the US presidential election.
Some analysts have defended this asset class. They argue that Macau casino equities are deeply discounted compared to historical norms. Investors, they say, are perceiving this group as significantly riskier than it actually is.
Wieczynski acknowledged that it’s reasonable for market participants to be cautious about Macau stocks. However, with Wynn trading at 8x forward earnings before interest, taxes, depreciation, and amortization (EBITDA), he believes the stock may be too cheap to ignore.
“We get it as to why investors don’t want to look at WYNN right now as there are fears out in the marketplace about the China macro backdrop coupled with fears around the health of the U.S consumer. But based on where shares are trading today, we believe the market is more than discounting enough potential headwinds for this name,” added the analyst.
He also noted that while Macau equities are likely to move in fits and starts, Wynn should be able to extract considerable long-term value in Macau due to the operator’s focus on higher margin gaming segments and cost controls.
Wynn Stock Has Catalysts
Macau stocks are clearly moribund and with Wynn down 16% over the past 90 days, it’d be easy for investors to be dismissive of the shares, but that ignores the point that it has tailwinds. That includes the Wynn Al Marjan Island project in the UAE.
Wieczynski argued that the venture, which is positioned to be the first regulated casino hotel in the Arab world, currently isn’t reflected at all in Wynn’s stock price, but it could eventually be worth $10 to $17 a share in today’s dollars.
“We would note WYNN is doing an extensive (three plus hours) investor day/presentation in early-October out in Las Vegas,” concluded the analyst. “We believe WYNN will spend a considerable amount of time going through their long-term growth opportunities with a specific focus around their UAE project. We don’t believe WYNN management would be holding such a detailed investor event unless they were confident in the long-term financial benefits this project should bring.”
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