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Here's Why Investors Should Dump Wynn Resorts Right Away

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Wynn Resorts, Limited’s (WYNN - Free Report) earnings miss for the second straight quarter was pretty upsetting for investors. In third-quarter 2018, a weak Las Vegas show led earnings to miss the consensus mark by 5.1%.

Shares of the company have declined 46.6% compared with the industry’s fall of 35.4% in six months’ time frame. With a Zacks Rank #5 (Strong Sell) and a Growth Score of C, the stock does not seem to be a good bet right now. Moreover, downward estimate revisions in the past seven days are reflecting analysts’ pessimism over the stock’s earnings potential.

Let’s delve deeper and try to find out what is taking the stock down.





Dismal Las Vegas Performance in Q3 2018

A dismal Las Vegas performance has been weighing on the company’s performance lately. Revenues from Las Vegas operations declined 14.1% year over year to $398.9 million in the third quarter. The downside can be attributed to drop in both casino and non-casino revenues. Casino revenues fell 28.4% to $92.9 million and table games drop decreased 18.6% to $404 million. Table games win fell a massive 34.4% year over year to $86.7 million. Moreover, total non-casino revenues declined 8.5% year over year to $306 million.

Debt Burden

Wynn Resorts’ heavy reliance on debt financing is a concern. At the end of third-quarter 2018, total outstanding debt amounted to $8.93 billion, including $3.10 billion of Wynn Las Vegas related debt, $4.24 billion of Macau debt and $985 million at the parent company and other.

Owing to a higher debt burden, the company may fail to finance its upcoming projects. Moreover, any downturn in the macroeconomic and credit market conditions is likely to make it difficult for the company to pay or refinance debts. Also, its debt/equity ratio is considerably higher than that of the industry.




Intense Competition

Wynn Resorts operates in highly competitive marketplaces like Las Vegas and Macau. Excess supply, especially in the Macau market, might reduce the company’s market share. Particularly, the company’s resort in Cotai — Wynn Palace — is likely to face extreme peer pressure from several local Chinese casino operators as well as the recently opened The Parisian Macao and the Sands Cotai Central project of Las Vegas Sands Corp. This may pose a huge threat to the company’s business in the region.

Estimates Trending Downward

Let’s look at Wynn Resorts’ earnings estimate revisions in order to get a clear picture of what analysts think of the company. In the past seven days, the Zacks Consensus Estimate for 2018 and 2019 has declined by 9.5% and 30.3%, respectively. Moreover, the consensus estimate for fourth-quarter 2018 has also moved down 39.8% to $1.15.

Meanwhile, to combat the above-mentioned headwinds, the company is undertaking several initiatives and building newer concepts to boost non-gaming revenues in Macau. The company has also been offering various promotional allowances to attract gambling patrons.

Stocks to Consider

Some better-ranked stocks in the Consumer-Discretionary sector are Belmond Ltd. and Peak Resorts, Inc. , both carrying a Zacks Rank #1 (Strong Buy), along with Eldorado Resorts, Inc. with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Belmond has an expected current-year earnings growth rate of 150%.

Peak Resorts has an expected 2019 earnings growth rate of 342.9%.

Eldorado Resorts has an impressive long-term earnings growth rate of 20%.

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