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Wynn Resorts: Economic Rebound Highly Uncertain
Stock Analysis & Ideas

Wynn Resorts: Economic Rebound Highly Uncertain

Wynn Resorts (NASDAQ: WYNN) operates as a holding company, which engages in the development, ownership, and operation of destination casinos resorts.

It operates through the following segments: Wynn Macau, Wynn Palace, and Las Vegas Operations. The company was in 2002 and is headquartered in Las Vegas, NV.

The pandemic has severely negatively impacted the travel and entertainment industry, with resorts and casinos such as Wynn Resorts reporting a dramatic decline in revenue over the past year. I am bearish on WYNN stock.

I consider the financial rebound of the company to take plenty of time, and the Omicron variant is still an unknown and very unpredictable catalyst that may lead to global lockdowns as coronavirus cases are rising again.

Wynn Resorts Business News

Shares of Wynn Resorts react to news related to the coronavirus, such as the reopening of the China-Hong Kong border to allow movement of residents without undergoing quarantine. These gains on positive news may be short-lived but are indicative of the coronavirus impact on the travel industry.

There was a leadership change in early December as Julie Cameron-Doe will become the company’s new Chief Financial Officer, effective in the second quarter of 2022, replacing Craig Billings, will become the new CEO.

In early November, Wynn Resorts and Austerlitz Acquisition Corporation, announced that the companies have mutually agreed to terminate their previously announced agreement and plans of merger, related to the combination of Austerlitz I and Wynn Interactive Ltd. a subsidiary of Wynn Resorts.

Wynn Interactive is the online gaming division of Wynn Resorts and this decision to cancel immediately the prospects of going public signals that Wynn Resorts sees more value to keep under its control this division after taking into consideration the cost-benefit analysis.

Q3 2021 Earnings

As of late 2019, WYNN stock earnings have been both weak and negative. Hotel stocks have been severely hit by the pandemic. In 2021, shares of Wynn Resorts have losses of approximately 17.8%. Strong earnings could be a catalyst to start a strong rebound for WYNN stock.

In Q3 2021, Wynn reported EPS of -$1.24 that beat estimates of -$1.31. On a year-over-basis, Wynn Resorts reported higher operating revenues of $994.64 million — an increase of 168% — a lower operating loss of $83.66 million compared to a loss of $283 million, and a net loss of $166.25 million compared to a net loss of $758.14 million the same period last year.

It is positive that all business segments, including Casinos, Rooms, Food and Beverage, Entertainment, Retail, and Others showed a revenue increase.

Fundamental Risks: Plenty of Negative Factors

Wynn Resorts keeps issuing new debt. Within the past three years, it has issued $2.8 billion of debt. The company in 2020 reported a net loss of $2.07 billion and continues to show a loss in operating income and declining gross margins. The average rate of decline per year for gross margin is -11%.

It is also very worrisome to note that revenue per share has been in decline for the last five years and the overall financial strength of the company is poor. The Altman Z-score of 0.52 places WYNN stock in the distress zone.

Even before the pandemic in 2018 and 2019, Wynn Resorts had a cash burn problem with negative free cash flow reported. In 2020, this negative free cash flow surged due to the pandemic, and this trend of negative free cash flow has persisted in the first nine months of 2021.

Adding other key facts such as WYNN stock having a negative shareholder equity and dilution of shares with total shares outstanding growing by 7.1% during the past year, it is very hard to be optimistic now.

Wall Street’s Take

Turning to Wall Street Wynn Resorts has a Moderate Buy consensus rating based on four Buys and five Holds assigned in the past three months. The average Wynn Resorts analyst forecast of $109.86 implies 25.1% upside potential.

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Disclosure: At the time of publication, Stavros Georgiadis, CFA did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >

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