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Wynn Resorts Banks on Macau Revival, Regulations a Concern

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On Sep 8, we issued an updated research report on leading developer, owner and operator of casino resorts, Wynn Resorts, Limited (WYNN - Free Report) .

Though the company has solid long-term growth potential but the risks from near-term headwinds might somewhat restrict its growth momentum.

Key Growth Drivers

Wynn Resorts generates a solid share of its revenues from Macau resorts. Apart from the gaming business in Macau, the company has been increasingly focusing on boosting non-gaming revenues. Given the decent visitation pattern therein, infrastructure development and government’s efforts to boost tourism, non-gaming sources are expected to boost revenues, going forward.

In fact, building resorts in Asia might help the company to capitalize on the strong consumer spending trend in the region.

Meanwhile, its properties in Las Vegas are likely to continue to cash in on the favorable trends of improving employment rate and positive tourism numbers in the region.

Moreover, the company’s casino resort that is expected to open in Massachusetts in 2019 is likely to strengthen its presence in the U.S. market. Moving ahead, Wynn Resorts plans to start building Wynn Paradise Park by year-end or early 2018, taking over a footprint that includes the Wynn Golf Club comprising restaurants, hotels and other entertainment options.

Macau’s Recovery & Regulatory Issues

A tough operating environment in Macau weighed on casino stocks from June 2014 to most part of 2016. However, Macau's gambling revenues marked a turnaround and have been improving since the second half of 2016 with new resorts attracting high rollers as well as leisure gamblers. Evidently, Macau’s gaming revenues were up in August, thus marking the 13th consecutive month of gains and signaling the casino hub’s recovery.

We thus note that the opening of Wynn Palace (in August 2016) has been a major reason for the turnaround in gambling revenues in Macau  as it attracted visits from tourists and leisure gamblers. Moreover, the resort is poised to fortify the company’s position in the Cotai strip over the long term.

However, continual construction around Wynn Palace has been hampering foot traffic therein, of late. Therefore, the company failed to fully capitalize on the rebound in Macau gaming revenues given somewhat lower-than-expected results at Wynn palace in the second quarter.

Furthermore, the Macau government recently joined hands with the mainland authorities to tackle money laundering and terrorism financing and beefed up its anti-money laundering framework with a much wider scope and stringent compliance measures. Macau's Gaming Inspection and Coordination Bureau (DICJ) is increasing its audits of the junket industry, over worries of money laundering as well.

Thus, this latest crackdown may hamper Macau’s revenue growth and reverse the 13 month streak of year-over-year gains, thus somewhat weighing down on Wynn Resorts’ performance.

Bottom Line

Shares of Wynn Resorts’ have rallied 47.2% in the last six months, outperforming 24% gain of the industry it belongs to. Given the ongoing recovery in gaming revenues in Macau and continued improvement in the Las Vegas business, the stock is likely to perform well in the quarters ahead.

Additionally, earnings estimates for current quarter and year have moved up 2.5% and 4.4%, respectively, over the past 60 days. This reflects ongoing optimism in the stock.

However, Wynn Palace is likely to face extreme peer pressure from several local Chinese casino operators as well as the The Parisian Macao (opened in September 2016) and the Sands Cotai Central project of Las Vegas Sands Corp. (LVS - Free Report) . Another US-based company, MGM Resorts International’s (MGM - Free Report) $2.9 billion casino hotel is also set to open in Cotai in the fourth quarter of 2017. We believe these openings might pose a huge threat to the company’s business in the region in the future.

Nevertheless, this Zacks Rank #3 (Hold) company is well poised for growth given its solid fundamentals, strong brand recognition, increasing market share, focus on non-gaming revenues and a fairly favorable macro environment.

A better-ranked stock in this sector is Melco Resorts & Entertainment Limited (MLCO - Free Report) holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Melco Resorts’ 2017 earnings climbed 2.7% over the last 60 days. Further, for 2017, EPS is expected to increase 98.7%.

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