So upbeat is Credit Suisse analyst Ben Chaiken on Wynn Resorts that he sent his price target into the stratosphere, predicting the $60.69-a-share stock will reach $117 a share in the near future. Chaiken’s Deutsche Bank opposite number, Carlo Santarelli, was more guarded (but optimistic) after meeting with Wynn executives, setting an $85-per-share goal for the stock.
Chaiken called Wynn “one of the more compelling stories in gaming,” primarily driven by expansions in convention space, both within and without Wynn Las Vegas. And though he described the timeline for a Macau recovery as “opaque,” Chaiken feels that negative sentiment “is near a bottom” after a brief casino closure. Such negativity, he noted, is already reflected in the share price and when a recovery finally happens, “we think a mix shift into higher margin mass/premium mass gaming will benefit EBITDA margins, not reflected in [Wall Street] estimates.”
Between cost-saving measures at Wynn/Encore in Las Vegas and its new convention center, Chaiken sees dramatic margin expansion from a pre-pandemic 25 percent to a current 40 percent. “We think these margins are likely sustainable … which in part drives our EBITDA estimates above the street.”
According to Chaiken, investors are putting “zero value” on Macau and on interactive WynnBet, thereby creating potential upside should they perform. Another silver lining is the withering of low-margin VIP play in Macau, which drives business toward more lucrative mass-market play. The only perils foreseen were sensitivity toward China’s economy and the ongoing re-tender process of Macanese casinos, which Genting Group entered at the last minute.
Santarelli huddled with unspecified Wynn honchos and emphasized burgeoning group business on the Las Vegas Strip, with “strong demand trends” and Wynn’s high-end market position complementing each other. The Wynn/Encore convention center, despite opening prior to the pandemic, was characterized as somewhat of a secret weapon “and had yet to experience a period of unencumbered bookings, up until the 2Q22.” Santarelli expects this positive trend to continue into next year.
“While the high-end market strength, as well as the modest changes in casino strategy, have helped Wynn Las Vegas to date, we also believe Resorts World has served as a net positive for foot traffic at the property,” Santarelli added. “We believe Fontainebleau, which we think ultimately gets to the finish line in the coming years, will provide a similar benefit, as the north end of the Strip continues to build critical mass.”
The flagship property was described as “adequately staffed,” with the implication that amenities were short-handed, although Santarelli anticipates a ramp up of employees once the new resident show, Awakening, debuts this autumn. He also waxed positive on trends at Encore Boston Harbor, particular once a $275 million capex investment is completed, adding more casino floor, a showroom, a comedy club, and more restaurants and bars – while a near-doubling of parking spaces (to 3,800) “is perhaps the most important aspect of the project.”
Santarelli waved off an “expected incremental bidder” (Genting) in Macau, saying he was “firmly of the view” that Wynn Resorts’ Macanese properties would stand pat, with a concession renewal happening by year’s end.
Turning to sports betting, the Deutsche Bank ambassador said that the company’s already-dominant position in Massachusetts “resonated favorably” for the launch of sports wagering at an as-yet-undetermined point.
“We do not expect WynnBet to spend heavily to garner share early on, given the brand recognition and loyalty, and we believe, if the current agenda plays out in Massachusetts, retail sports betting could launch 3-6 months ahead of [online], thereby providing [brick-and-mortar] operators a nice customer-acquisition head start.”
He was less than optimistic about California, where “the prospects for legalized [online sports betting] have dimmed, as the opposition is fierce, and we have long felt having two initiatives on the ballot didn’t bode well for passage.” Santarelli thinks the worst-case scenario would not be for both initiatives to fail, but for tribally backed Proposition 26 to pass, bringing retail-only sports wagering to the Golden State and thereby making online betting that much harder to introduce.
“We would also note,” he summarized, “that the upfront initiative spend, which we believe some operators have stopped funding, and, more important, the $100 [million] upfront fee make participation for all but a small handful of operators somewhat illogical.”
Finally, with regard to Wynn’s casino project in the United Arab Emirates, progress was said to be continuing, with funding going into the development later this year, followed by a 2023 groundbreaking. Santarelli foresees the opening to be in 2026 or 2027. “We expect management to put forth, to the investment community, more robust project details in early 2023.”
