Posted on: January 30, 2024, 08:46h.
Last updated on: January 30, 2024, 08:46h.
Wynn Resorts (NASDAQ: WYNN) is improving its credit story and has earned a junk grade of “BB-“ with a “stable” outlook in new coverage by Fitch Ratings.
According to Fitch Ratings, there are factors in favor of the casino operator’s credit profile, including a compelling portfolio of land-based casino assets. The ongoing recovery in Macau, where Wynn Resorts has a significant presence, and strength in Las Vegas with its namesake casino hotel and Encore Las Vegas are contributing positively to the company’s credit outlook.
However, this is somewhat offset by the company’s average diversification, although it operates in two of the largest gaming markets in the world. The capital required to fund current and potential capital projects could affect the pace of more meaningful credit improvement,” according to Fitch.
Wynn’s “stable” outlook indicates Fitch’s view that Macau will continue to recover from the coronavirus pandemic slump and that the company has solid liquidity.
Macau Seen Supporting Wynn Resorts Credit Profile
Under normal circumstances, Macau drives two-thirds or more of Wynn’s earnings before interest, taxes, depreciation, amortization, and depreciation (EBITDA) and revenue, making it a China-dependent company based in the US.
That implies Wynn is vulnerable to China’s economy and US/China geopolitical tensions. However, data shows casino activity is rebounding in Macau and there is room for growth.
Additionally, Wynn’s venues in the special administrative region (SAR) — Wynn Macau and Wynn Palace — are adapting to a new operating environment that’s less dependent on VIPs and more focused on premium mass bettors.
“Despite the rapid growth in gaming revenues, visitation and airline capacity remain below 2019 levels, and the rebound in those metrics should provide another source of further revenue growth over the near term,” added Fitch. “Results at Wynn Palace has responded strongly, with mass market revenues and property EBITDAR margins for 3Q23 already above 2019 levels.”
Prospects for Wynn Credit Upgrade
With a “BB-“ credit rating, Wynn is in the third-highest junk territory, indicating that it could take time before the operator attains investment-grade status. However, Wynn’s increasingly bright free cash flow prospects, cash on hand of $2.8 billion, and efforts to trim exposure to lagging businesses support the current credit rating.
At the Encore Boston Harbor, the company is set to add new amenities, which are expected to be completed in 2026 and could further boost the venue’s status as one of the top-performing regional casinos in the US. Fitch also sees Wynn focusing more on its dividend than share buybacks.
“Wynn has repurchased stock in 2023, but Fitch believes capital allocation to shareholders will focus primarily through the dividend. A nominal amount of share repurchases is estimated over the forecast horizon as opportunistic purchases,” concluded the ratings agency.