“Hard to hate Macau’s momentum,” was a headline in a November 9 investor note from Jefferies Equity Research analyst David Katz. He liked both the Chinese market and Macanese participant Wynn Resorts.
Katz acknowledged “mixed results” from the gaming group’s third-quarter earnings. However, he favored “those [companies] exposed to Asia’s markets or those with opportunistic capital projects in the pipeline.” Wynn qualified on both counts.
Cash flow at Wynn Macau grew 7.4 percent in the third quarter, despite poor hold at VIP tables. Similarly, Wynn Palace cash flow leapt 23.4 percent, with VIP play escalating 56.7 percent and a 15.2 percent acceleration in mass-market action.
“We remain optimistic,” Katz wrote, projecting growth of as much as nine percent during the fourth quarter. He was also planning to visit in-progress Wynn Al Marjan in the United Arab Emirates.
The analyst noted that additional momentum was gathering for more mergers and acquisitions. Alluding to Golden Entertainment, he wrote, “We retain our view that more is likely to come.”
Katz lopped $3 off his Penn Entertainment price target, bringing it down to $16, just above where the stock was trading on November 10. Conversely, he raised his $26 price target on Golden Entertainment to $30 per share, ahead of CEO Blake Sartini’s private takeover of the company.
With respect to Golden, Katz saw potential for 41 percent appreciation in the stock’s November 5 price, partially thanks to its deal with Vici Properties to sell and lease back seven casinos. “We view OpCo/PropCo best as a growth vehicle and expect management will pursue such opportunities.”
Golden’s share price, he added, is now in alignment with the Vici deal, “rendering further upside unlikely, unless a higher bid emerges during the ‘go-shop’ period through Dec. 5.”
Turning from Las Vegas, Golden’s center, to regional casinos, Katz wrote, “Earnings this quarter revealed a clear separation between the haves and have-nots. Many properties remain underinvested, allowing new supply or refurbished properties to take share.”
For Katz, Penn was both a “have” and a “have-not.” It was the former in Chicagoland, where new Hollywood Joliet was seeing a 17.6 percent Midwest-divisional growth in gambling revenue and driving a $3.3 million third-quarter cash-flow beat. However, in the south, Penn missed cash-flow projections by $4.6 million. Katz blamed this on new casino competition and higher labor costs.
But for Katz, brick-and-mortar casinos were a secondary catalyst to Penn’s online business, which just saw the jettisoning of ESPN Bet. “The ESPN separation was expected, though timing before football playoffs is a surprise,” wrote Katz, adding, “investors should demand swift results and a clear path to profitability.”
Profitability was, he thought, achievable by 2026, and congruent with Penn leadership’s targets, “but tempers our confidence until proven.” While Katz trimmed his online-revenue projections by 18.8 percent, the removal of ESPN licensing fees prompted him to lift 2026 cash flow from $24.3 million to $71.1 million.
Returning to terrestrial casinos, Katz concluded that Penn “has compelling regional projects, though rationalizing the Street’s interactive expectations is key to reversing share performance.”
As for Wynn, he felt it would continue to outperform revenue catalysts, cautioning that next year’s earnings would have to keep accelerating as rapidly as 2025 ones have.
