Wynn Resorts, Limited (WYNN - Free Report) is poised to benefit from its focus on both gaming and non-gaming services. The company has been deriving a solid share of its revenues from Macau resorts. Gambling revenues from Macau surged 16.6% in December and also surpassed analysts’ expectation, which is likely to benefit the company in the quarter under process.
Subsequently, the company’s shares have displayed some resilience of late. After losing 31.5% in the past year, the stock has increased 12.6% year to date, outperforming the industry’s growth of 12.5%. Moreover, the Zacks Consensus Estimate for current-year earnings has been revised upward by 1.8% over the past month, reflecting analysts’ optimism surrounding the company’s earnings potential.
Hence, investors may want to take advantage of the recent share price appreciation of this Zacks Rank #1 (Strong Buy) company. You can see the complete list of today’s Zacks #1 Rank stocks here.
Let us delve deeper into reasons that make Wynn Resorts a lucrative pick now.
Top-Line Building Initiatives Encourage
Apart from the gaming business in Macau, Wynn Resorts has been increasingly focusing on boosting non-gaming revenues. Given the decent visitation pattern in Macau, infrastructure development and the government’s efforts to bolster tourism, non-gaming sources are expected to boost revenues, going forward. Meanwhile, Wynn Resorts has been offering various promotional allowances and undertaking initiatives to attract gambling patrons.
In order to boost performance in Las Vegas, the company remodeled rooms at its properties and the baccarat pit. Though tourism in Las Vegas has not yet reached the pre-recession level, it is on its way to recovery. The number of visits has been increasing every year. With the improving job scenario and stabilizing gas prices, the consumer spending environment in domestic markets is improving. Backed by the optimism surrounding tourism in Las Vegas and increasing visitation pattern, revenues are likely to grow. Moreover, the company’s casino resort, expected to open in Massachusetts in 2019, will strengthen its presence in the U.S. market.
Sports-Betting Legalization to Aid
The legalization of sports betting outside Nevada holds a lot of prospect for gaming companies such as Penn National (PENN - Free Report) , Las Vegas Sands (LVS - Free Report) and Melco (MLCO - Free Report) . Notably, Wynn Resorts entered an agreement with BetBull Limited (“BetBull”) — a sports betting operator based in Europe. Wynn Resorts and BetBull’s digital sports-betting platform will leverage on the developing sports betting market in the United States.
Valuation Looks Favorable
Since casino stocks are debt-laden, it makes sense to value those based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio. This is because the valuation metric considers not just equity but also the level of debt on a company’s balance sheet. For capital-intensive companies, the EV/EBITDA is a better valuation metric because it is unaffected by changing capital structures and ignores effects of non-cash expenses on a company’s value.
Looking at Wynn Resorts’ EV/EBITDA ratio, the company seems undervalued compared with its peers. Its trailing 12-month EV/EBITDA is 14.7x, which is below the high of 20.5x scaled over the past year. The industry’s ratio, on the contrary, stands at 20.6.
Moreover, per the VGM Score, which identifies the most attractive value, growth and momentum characteristics, Wynn Resorts has a Value Score of B, indicating that the stock is most likely to outperform.
Higher Net Margin
Traditionally, gross margin for gambling companies is always comparatively higher as the majority of their expenses come from the cost of operations. However, the sector’s profit margin narrows once these expenses from operations are taken into account. Consequently, net profit margin or net margin is considered the accurate metric for gauging profits of hospitality companies. Wynn Resorts’ trailing 12-month net margin is 8.9%, higher than the industry’s average of 1.6%.
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