Shares of Wynn Resorts, Limited (WYNN - Free Report) have witnessed a sharp decline of more than 8% in the last two trading sessions. The downside can be primarily attributed to disappointing gambling revenues from the Macau region in May. Other stocks such as Melco Resorts & Entertainment Ltd. (MLCO - Free Report) and Las Vegas Sands Corp. (LVS - Free Report) , which belong to the same industry and has highest exposure to Macau region, have also declined following the news.
Gambling revenues from Macau increased 12.1% to 25.5 billion patacas ($3.16 billion) in May. The metric not only lagged analyst expectations but also decreased 0.9% from the figure registered in April. Although gambling revenues were up for the 22nd straight months, it still remains below the highest level achieved in 2012.
A tough operating environment in Macau weighed on casino stocks from June 2014 to most part of 2016. In fact, the crackdown on corruption in China compelled Macau officials to impose restrictions on high rollers to stop billions of dollars from being siphoned off illegally from mainland China to Macau.
As a result, footfall declined at the local casinos, leading to a constant decrease in gaming revenues. A slowdown in China, tighter visa policies, political unrest and a smoking ban on mass market gaming floors compounded the woes. Nevertheless, Macau's gambling revenues marked a turnaround and have been rising since the second half of 2016, with new resorts attracting high rollers and leisure gamblers.
What’s Lies Ahead for Wynn Resorts?
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 in Macau, infrastructure development and government’s efforts to boost tourism in Macau, non-gaming sources are expected to drive revenues moving ahead.
Moreover, the company’s full-scale integrated resort in Cotai, Macau, is poised to witness increased visits from tourists and leisure gamblers over the long term. This, in turn, should fortify Wynn Resorts’ position in the Cotai strip.
Notably, such projects are expected to draw business and leisure travelers, and provide a solid platform for growth. In fact, building resorts in Asia should help the company capitalize on strong consumer spending trend in the region. Meanwhile, in Wynn Palace, the company is working on two new restaurant concepts that are expected to add significantly to the non-gaming business.
Also, the government of China is considering measures to support Macau’s economy and introduce favorable policies, which are expected to improve visitation pattern and increase tourism and traffic in the region. These stratergic initiatives include approval of Macau’s maritime expansion plans that is expected to boost shipping and tourism. Also, the government has allowed mainland Chinese cities to offer multi-entry permits.
In a year’s time, Wynn Resorts’ shares have gained 33.7%, outpacing the industry’s rally of 17.1%.
Zacks Rank & a Key Pick
Wynn Resorts has a Zacks Rank #3 (Hold). A better-ranked stock in the same space is Penn National Gaming, Inc. (PENN - Free Report) sporting a Zacks Rank #1 (Strong Buy). The company’s earnings have surpassed the Zacks Consensus Estimate in two of the trailing three quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.
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