J.P. Morgan analyst Joseph Greff cautioned investors not to be fooled by the underperformance of Wynn Resorts stock. It “represents a good risk-reward,” especially with its resort project underway in the United Arab Emirates.
In a note to investors Monday, Greff said Wynn stock, which has been trading in the mid-to-upper $70s, is one of the issues that gaming investors might not necessarily be considering, given that macro-economic conditions have trumped micro-company ones.
The reason, Greff explained, is Macau has also impacted Las Vegas Sands Corp., Melco Resorts & Entertainment, and MGM Resorts International to some extent.
Macau has caused these stocks to be sizable underperformers for a while now. “In this vein, we have reviewed our positive-investment thesis on Wynn, which is down about 17% year to date versus the S&P 500 which has returned about 16% year to date. Its share price is back to March 2006 levels.”
Thus, Greff pointed out that Wynn in the mid-$70s “represents a good risk-reward with a value that we can argue reflects reasonably low-to-fair and not-excessive value for its Las Vegas and Encore Boston Harbor asset values/cash flows.” Greff also cited Wynn’s developable Las Vegas land and Macau royalty streams, “with hardly any value for its Macau property cash flows, which can be approximated at the very least via its 72% stake in Wynn Macau.”
Greff said their 2025 price target of $101 is based on the sum-of-the parts approach on 2025 earnings. It closed Wednesday at $77.04.
If they give full net present value share for the Wynn Al Marjan resort under construction in the United Arab Emirates, Greff said that offsets any value currently ascribed to its majority stake in Wynn Macau. Wynn has a sizable equity interest in the UAE property, in addition to a management contract. It has invested $514 million in the property that opens in 2027.
“We note that Wynn is hosting an investor day in early October in Las Vegas to provide the buy-side and sell-side with a detailed three-hour presentation. We’d expect the majority of this time to be utilized for management to specifically discuss its opportunities in the UAE,” Greff said. “We think it’s important to recognize that heretofore, management has been mostly quiet on this project, since there hasn’t been a lot of certainty as to when gaming regulations would be announced/codified and a formal license granted to Wynn Al Marjan.”
Greff said because management is willing to host a three-hour investor meeting, it might imply that regulations and license issuance are imminent. He doesn’t look at this as a de-risking event, but one in which equity investors can start to ascribe the discounted equity value related to the project.
“It could also suggest that management and the board are looking to be visible and aggressive on ways to generate shareholder value,” Greff said.
Wynn’s current market cap is about $8.4 billion. Its stake in HK-listed Wynn Macau is $2.6 billion or $23 per share, Greff said. This implies that equity value related to the rest of its business is worth $5.8 billion or $52 per share.
For Las Vegas, applying a multiple to the $900 million-plus in EBITDA, Greff thinks what the property generates this year “might be tough for investors to stomach” given the argument of what is normalized EBITDA.
“Is 10x $900 million fair? Is 11x $850 million fair? We think another way to look at it is on a per room/key basis,” Greff said. “In this scenario, we ascribe a reasonable $1.6 million per key (fair in relation to lodging transaction activity for premier assets), which generates $7.6 billion of gross asset value and implies a 9.5x multiple if we assume $800 million is normalized EBITDA.”
Grefff thinks $7.6 billion is a reasonable way to value Wynn’s Las Vegas assets. Encore Boston Harbor is worth $857 million, he added.
J.P. Morgan ascribes a value of $336 million for Wynn’s land bank in Las Vegas, which includes the old Frontier site of 34 acres purchased late 2017. He also values Wynn Macau’s royalty stream at 10 times or $1.1 billion.
“We think the UAE/Wynn Al Marjan is worth $10 per share,” Greff said. The sum total of (our) math implies that the non-Macau assets are worth $7.95 billion or $72 per share. Yes, assuming full value for Wynn Al Marjan/UAE and zeroing out the equity value of its stake in Wynn Macau gets a per share value close to where the stock is currently trading.”
Greff said if they exclude the UAE project, they get a net asset value of $85, some 12% above the current price.
“We see considerable value in Wynn at present levels and reaffirm our Overweight rating,” Greff said. “We’re optimistic that investors will begin to ascribe some value for the UAE. We suspect that we aren’t the only ones recognizing the deep value in Wynn, which has a sizable development pipeline with zero value related to New York or Thailand.”
