Published on: September 13, 2024, 03:15h.
Last modified on: September 12, 2024, 11:05h.
With stocks of Wynn Resorts (NASDAQ:WYNN) down 16.30% year-to-date while the S&P 500 is up 17.63%, it’s simple to comprehend why some investors are cautious about the gaming stock — apprehension heightened by the macroeconomic climate in China.
Decline in China’s economy — the world’s second-largest — is a valid reason for market participants to steer clear of Chinese stocks and Macau gaming names like Wynn Macau. Nevertheless, Stifel analyst Steven Wieczynski argues that investors are currently assigning no value to Macau or the operator’s United Arab Emirates (UAE) project to the stock. That situation is “absurd,” according to the analyst.
We do believe current trading levels of WYNN shares are essentially pricing in almost zero value for their Macau assets (as well as their UAE project), which we believe is way too pessimistic/Draconian,” wrote Wieczynski in a new report to clients.
The analyst added that although he reduced estimates on Wynn’s Las Vegas and Macau integrated resorts, he sees the stock as appealing and recent weakness as a possible buying opportunity. He reaffirmed a “buy” rating while lowering his price target to $103 and $121. Even with that decrease, the new forecast indicates potential upside of about 35% from Thursday’s close.
Wynn, Other Macau Stocks Are Deeply Discounted
For nearly five years now, Wynn Macau and shares of the other concessionaires in the Special Administrative Region (SAR) have faced challenges, and those difficulties intensified this year due to stagnation in the Chinese economy and concerns ahead of the US presidential election.
Some analysts have defended the asset class, stating that Macau casino stocks are deeply discounted compared to historical averages and that investors perceive the group as much riskier than it actually is. Wieczynski acknowledged that it’s understandable for market participants to be hesitant about Macau names, but with Wynn trading at 8x forward earnings before interest, taxes, depreciation, and amortization (EBITDA), the stock may be too undervalued to overlook.
“We understand why investors are hesitant to consider WYNN at the moment as there are concerns in the market about the China macro environment along with worries about the health of the US consumer. However, based on the current trading levels, we believe the market is discounting more than enough potential challenges for this stock,” added the analyst.
He also mentioned that while Macau stocks are likely to experience ups and downs, Wynn should be able to derive substantial long-term value in Macau due to the operator’s focus on higher margin gaming segments and cost controls.
Wynn Stock Has Catalysts
Macau stocks are clearly stagnant, and with Wynn down 16% over the past 90 days, it would be simple for investors to disregard the shares, but that overlooks the fact that there are positive factors. This includes the Wynn Al Marjan Island project in the UAE.
Wieczynski argued that the venture, set to be the first regulated casino hotel in the Arab world, is currently not factored into Wynn’s stock price at all, but it could eventually be valued at $10 to $17 a share in today’s dollars.
“We would note WYNN is hosting an extensive (three plus hours) investor day/presentation in early-October in Las Vegas,” concluded the analyst. “We believe WYNN will dedicate a significant amount of time to outlining their long-term growth opportunities with a specific focus on their UAE project. We do not think WYNN management would hold such a detailed investor event unless they were confident in the long-term financial benefits this project should bring.”