Wynn Continues Its Rise, With Macau in Focus

One quarter ago, Wynn Resorts was buoyed by its domestic operations in Las Vegas as the Chinese market slipped more than expected. Since then, though, the story has changed back in favor of the Chinese territory, Macau. The fall was a big month for the world's biggest gaming town, and Wynn was right there to benefit every step of the way. The company released earnings on Thursday to the market's delight -- a big-time beat on the bottom line and a slightly less yet still impressive showing on the top line. Macau and its Cotai Strip are set to continue their phenomenal growth as the Chinese middle class expands and the region takes on a more global presence in the tourism industry. With a bit of luck, Wynn should remain right on top.

Earnings recap
Las Vegas revenue for Wynn Resorts may have only climbed 1% to $392.5 million, but the company saw a near 10% rise in sales from Macau, contributing to an overall gain of 7.1% -- $1.39 billion. The Street had been expecting $20 million less.

On the bottom end of the income statement, the company posted bigger gains. Profits hit $1.84 per share for the fiscal third quarter -- $0.18 per share above the average analyst estimate.

Macau, though predicted to grow substantially independent of the macroeconomic environment, was boosted by the first positive gain in Chinese economic growth in three quarters. Still, the Macau gaming story is one that Wall Street has paid close attention to for years. Does this mean that the coming growth for Wynn and its gaming brethren is already well baked into the stock prices?

Pay to play
Wynn trades at nearly 24 times forward earnings and has an EV/EBITDA of 13.82 times. For comparison, Las Vegas Sands trades at 20 times forward earnings and with an EV/EBITDA of 14 times. Both businesses are focusing the majority of their working capital on Macau, with Wynn in the midst of construction of its latest multibillion-dollar resort there -- the Wynn Palace. The resort, with 1,700 rooms and the usual lineup of a Wynn resort (performance lake, restaurants, spa, retail, etc.) is expected to cost a total of $4 billion and will open in the first half of 2016 barring any unforeseen issues.

The stock, while not cheap, offers exciting growth potential in Macau. With the enormous cash flows inherent in a casino business and the expert execution associated with any Steve Wynn project, Wynn Resorts remains a compelling growth pick that should show substantial long-term winnings.

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