Citing “multiple drivers of fundamental upside,” Deutsche Bank analyst Carlo Santarelli raised his price target on Wynn Resorts to $134 per share. At the time, Wynn shares were trading at $106.54 apiece.
He reported, “Investors are potentially taking the view that too much has been priced in too soon, hence the recent malaise in the shares. While this could surely prove accurate, given the risk of a U.S. recession and the uncertainty of the shape and ultimate destination of the ramp in Macau, we believe WYNN shares are already pricing in some fundamental disruptions.”
Noting that Wynn had “healthily outperformed the gaming sector and broader market” so far this year, Santarelli wrote that he believed “meaningful upside” was still possible and that he remained bullish on the stock. He primarily cited Wynn’s nascent project in the United Arab Emirates, which broke ground last week. It is something that “we do not believe to be reflected in the shares at present.”
The analyst notes that, in the next few months, Wynn Resorts will provide greater detail on the budding casino-resort, which will motivate Wall Street to attribute more value to it. “We believe this project could be worth $10-$14 per share in present equity value, with little, if any, value currently embedded in shares,” particularly for a project that — when completed — will enjoy two years of exclusivity before any rival casino appears on the scene. An early 2027 opening is anticipated.
Santarelli expects Wynn Resorts to spend between $600 million and $800 million on the Al Marian Island project, which will entail a 1,500-room hotel and a casino comparable in size to Encore Boston Harbor’s. The total price tag, which will be largely borne by RAK Hospitality, will be as much as $4 billion.
Potential return on investment could, he projected, be between $180 million and $260 million a year. “In our view, the project is well positioned to generate strong returns,” Santarelli continued, citing a population of 10 million (90 percent of them expatriates and thus allowed to gamble), plus 22 million tourists per year, along with a tax structure comparable to Singapore’s, in the neighborhood of 13 percent.
He also iterated a belief that Wynn shares were undervalued, a condition “that seemingly implies a lack of conviction in stabilized out-year forecasts.”
Another of Santarelli’s positive drivers is performance in Macau that is stronger than anticipated, especially in light of normalization of the gambling market in that Chinese enclave. He foresaw continued month-by-month improvements in Macanese gross gambling revenue and foot traffic.
Santarelli also applauded staffing cuts at Wynn Macau, down $190 million last year from pre-pandemic 2019. His arithmetic showed this as adding 14 percent to cash flow. He modeled an additional $50 million in savings this year “and we believe this could prove conservative.”
“In addition,” Santarelli continued, “in a gaming sector in which the risk of negative revisions for the domestic casino operators remains an overhang, we believe equity exposure to the growth and favorable revision potential of Macau remains prudent.”
He forecast a 10 percent growth in high-margin play by the mass market, driven in part by an increase in China’s gross domestic product, as well as a Wynn pivot toward mass-market action and away from low-margin junket players (with VIP play translating into only 37 percent of 2019 levels). Mass-market players, he wrote, were willing “despite numerous logistical challenges” to play in Macau again.
In light of the Macanese trends, as well as those in Boston (“steady performance”), and “continued strength” in Las Vegas, Santarelli bumped his price target up six dollars and reiterated his “Buy” rating.
There were also “discreet” drivers of value, including the prospect of a New York City casino concession.
“While we would be hard pressed to call WYNN, or anyone else for that matter, a favorite in the process for the 3rd downstate license, we believe WYNN has a compelling location/pitch for the NYC property,” Santarelli said of the company’s bid for the Hudson Yards site, west of 11th Avenue, a joint venture with Related Cos. Santarelli found a potential return on investment of as much as 15 percent to be “seemingly reasonable.” Still, he thought a license award was “at best” a 2024 occurrence.
On the flip side, “We don’t have high hopes for a day in which Wynn Interactive is a meaningful value driver of the shares.” Still, Santarelli observed, losses had narrowed from $267 million in 2021 to $99 million last year and he expects continued progress this year.
“If nothing else, we believe the drag on headline results will abate in the near term, with the potential for an upside surprise should WYNN generate adequate share in the Massachusetts OSB market, given their physical presence in the state, and their retail launch ahead of the online launch, which should have helped with early, and cost efficient, customer acquisition,” he concluded.
