Wynn Resorts (NASDAQ:WYNN) stock more than doubled off its March lows. But it’s still in a funk this year, shedding nearly 48 percent as the coronavirus pandemic punishes gaming equities. However, one fund manager sees big things ahead for the Encore operator.
A custodian cleans the escalader near Wynn Resorts on the Las Vegas Strip. Infinitum Partners believes Wynn Resorts stock can more than double to $150. (Image: Bloomberg)
Infinitum Partners, a Miami-based long/short investment firm, says Wynn can surge to $150 a share over the next six to 12 months, more than doubling from the Oct. 9 close of $72.67. John Yetimoglu, the founder of the money manager, said he has “high conviction” in the gaming operator despite recent struggles in Macau, the Chinese region that accounts for 70 percent of Wynn’s venue.
He points out that on valuation, Wynn stock is today trading at levels that are more depressed than what was seen during the global financial crisis.
WYNN is trading at about 5 times normalized EBITDA (earnings before interest, taxes, depreciation, and amortization), which is a historical trough,” said Yetimoglu. “This is worse than 2008, when many casino operators were declaring bankruptcy due to the debt covenants on their real estate exposure.”
The fund manager adds that current valuations on Wynn are below those seen in 2015, when Beijing cracked down on Macau junket operators, citing money laundering offenses. Usually, Macau gaming names trade at 15x to 20x EBITDA.
Good Deal with Wynn
Yetimoglu argues that the current situation in Macau isn’t nearly as grim as the global financial crisis or the 2015 junket scandal. He notes that Wynn has a strong balance sheet and capital spending is declining.
The fund manager points out the company has $4 billion in cash, and with Encore Boston Harbor — one of its three domestic venues — complete, capital expenditures should noticeably decrease. He forecasts the Wynn Palace operator will generate $2 billion in EBITDA and $1 billion of free cash flow in 2022.
The Infinitum founder says he prefers Wynn to a basket of gaming stocks, including rivals Las Vegas Sands (NYSE:LVS) and MGM Resorts International (NYSE:MGM), because the former is most exposed to Macau, a market he sees rebounding more rapidly than other marquee casino destinations.
Wynn has the most exposure to VIP players, who account for 50% of the company’s revenue,” said Yetimoglu. “Why do I want more VIP exposure? Because I believe the VIP gaming segment will come back before mass market.
Because of the pandemic, the tables on the casino floor that typically have six or seven players sitting side by side in close proximity will be at limited capacity,” he continued. “VIPs play in private rooms, typically with one player per table, at much larger stakes.”
He notes that high-end players, some of whom play upwards of $1 million a hand, travel in private jets and have elevators in their suites, creating natural social distancing effects.
Wynn’s Risky Outlook
Wynn’s potential run back to $150 won’t be risk-free. Potential delays in Macau licensing renewals and a possible flare-up of COVID-19 cases there are factors that would weigh on all of the special administrative region’s (SAR) six concessionaires, Wynn included.
From a technical perspective, Wynn stock hasn’t spent much time above $150. It briefly traded above that level prior to the pandemic and had a short flirtation with that price point last year.
Before that, the last time the name consistently traded above $150 was in late 2017/early 2018, prior to founder Steve Wynn’s ouster from the company because of allegations of sexual misconduct. The stock’s all-time high is almost $250, last seen in early 2014.
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