Company Reports

Covid's headwind on Wynn's Macao operations (51% of estimated 2024 EBITDA) eased greatly in 2023, after China removed restrictions on Jan. 8, 2023. But slowing economic growth presents a near-term headwind to demand and the Macao government continues to heavily regulate VIP play, elevating long-term operational risk. Also, Wynn has exposure to the expected long-term shift away from VIP gaming revenue toward nongaming and mass play. That said, we see an attractive long-term growth opportunity in Macao, with Wynn's high-end iconic brand positioned to participate, leading to an estimated low-teen percentage gross gaming revenue share in 2024.

We don’t plan to meaningfully change our $122 per share fair value estimate for narrow-moat Wynn after the company posted solid second-quarter results in its Macao and Las Vegas regions. We find shares attractive, trading at just 7 times forward enterprise value/EBITDA versus the 10-11 times before the pandemic, as we believe investors are discounting the resiliency of the Macao and Vegas gaming enclaves and Wynn’s position in those regions.

Covid's headwind on Wynn's Macao operations (51% of estimated 2024 EBITDA) eased greatly in 2023, after China removed restrictions Jan. 8, 2023. Still, the Macao government continues to heavily regulate VIP play, elevating long-term operational risk. Also, Wynn has exposure to the expected long-term shift away from VIP gaming revenue toward nongaming and mass play. That said, we see an attractive long-term growth opportunity in Macao, with Wynn's high-end iconic brand positioned to participate, leading to an estimated low-teen percentage gross gaming revenue share in 2024.

Narrow-moat Wynn’s first-quarter results echoed peer reports from narrow-moat Las Vegas Sands and no-moat MGM and Caesars, pointing to strong recovery demand in Macao after the removal of covid-19 restrictions early last year and resilient travel to Las Vegas. We don’t plan meaningful changes to our $122 fair value estimate, leaving shares undervalued.

Thailand moved closer to legalized gambling this month with the completion of a gaming draft bill, setting the stage for a law as soon as this year, based on reports of strong government support. We don’t believe the prospect of Thailand gaming resorts will have any material impact on demand for casinos in Macao, Singapore, or Japan for the foreseeable future. We are maintaining our fair value estimates of $61 for narrow-moat Las Vegas Sands, $122 for narrow-moat Wynn Resorts, and $55 for no-moat MGM Resorts. We rate all three as undervalued.

Covid's headwind on Wynn's Macao operations (50% of estimated 2024 EBITDA) eased greatly in 2023, after China removed restrictions Jan. 8, 2023. Still, the Macao government continues to heavily regulate VIP play, elevating long-term operational risk. Also, Wynn has exposure to the expected long-term shift away from VIP gaming revenue toward nongaming and mass play. That said, we see an attractive long-term growth opportunity in Macao, with Wynn's high-end iconic brand positioned to participate.

We plan to lift narrow-moat Wynn’s $122 fair value estimate by a mid-single-digit percentage to account for stronger demand and profitability at its Vegas and Macao resorts, leaving shares undervalued even after the 4% lift in afterhours trading.

COVID-19's headwind on Wynn's Macao operations (50% of estimated 2024 EBITDA) has eased greatly in 2023, after China removed restrictions Jan. 8, 2023. Still, the Macao government continues to heavily regulate VIP play, elevating long-term operational risk. Also, Wynn has exposure to the expected long-term shift away from VIP gaming revenue toward nongaming and mass play. That said, we see an attractive long-term growth opportunity in Macao, with Wynn's high-end iconic brand positioned to participate.

Narrow-moat Wynn shares lost 5% in afterhours trading, after the company’s Macao results disappointed, as its peninsula product is losing traffic to its Palace resort and other properties on the Cotai strip. That said, we were not dismayed by the results. We have long expected Wynn’s Macau recovery to lag peers, given the operators' historic mix of higher-end gamers, who have returned more slowly than mass players, and its exposure to the peninsula area, which doesn’t have the attraction of the newer casinos in Cotai. As a result, we don’t expect Wynn’s $122 fair value estimate to materially change and see shares as undervalued.

COVID-19's headwind on Wynn's Macau operations (50% of estimated 2024 EBITDA) has eased greatly in 2023, after China removed restrictions Jan. 8, 2023. Still, the Macau government continues to heavily regulate VIP play, elevating long-term operational risk. Wynn has exposure to the expected long-term shift away from VIP gaming revenue toward nongaming and mass play. That said, we see an attractive long-term growth opportunity in Macau, with Wynn's high-end iconic brand positioned to participate.

We plan to increase our $117 fair value estimate for narrow-moat Wynn by a low-single-digit percentage to account for a stronger Macau gross gaming revenue industry sales recovery.

COVID-19's headwind on Wynn's Macau operations (45% of estimated 2024 EBITDA) has eased greatly in 2023, after China removed restrictions Jan. 8, 2023. Still, the Macau government continues to heavily regulate VIP play, elevating long-term operational risk. Wynn has exposure to the expected long-term shift away from VIP gaming revenue toward nongaming and mass play. That said, we see an attractive long-term growth opportunity in Macau, with Wynn's high-end iconic brand positioned to participate.

We plan to increase our $109 per share fair value estimate for narrow-moat Wynn by a mid-single-digit percentage to account for strong sales and profits in Las Vegas and Macao. Wynn’s Las Vegas results continue to reach new heights, with first-quarter revenue at 146% of 2019’s level, above our 140% estimate for the full year. Vegas occupancy was 89% versus 83% in the comparable 2019 period, while the average daily rate was a staggering 146% of prepandemic marks. Wynn is seeing no signs of demand weakness in the region, and we think group and international travel, along with a strong calendar of events in the second half, can push Vegas to around 13% sales growth in 2023 versus our prior expectation of 7%. Meanwhile, Vegas EBITDA margin was 39.5%, up nicely from 36.1% last year, aided by mix shift to group and overseas customers. Here we plan to lift our 2023 margin forecast to 38% from 36%.

COVID-19 posed a material headwind on Wynn's Macao operations (40% of estimated 2024 EBITDA) should ease greatly in 2023, after China removed restrictions Jan. 8, 2023. Still, the Macao government continues to heavily regulate VIP play, elevating long-term operational risk. Wynn has exposure to the expected long-term shift away from VIP gaming revenue toward nongaming and mass play. That said, we see an attractive long-term growth opportunity in Macao, with Wynn's high-end iconic brand positioned to participate.

With China reopening travel Jan. 8, the key question for narrow-moat Wynn investors is how its Macao (estimated to be 40% of 2024 EBITDA) business will recover in 2023. In this vein, Wynn gave some encouraging data points. Specifically, Wynn noted that the Lunar New Year holiday saw its Macao hotel occupancy at 96%, with mass gaming volume at 95% of the way back to the comparable 2019 period. Further, Wynn noted that postholiday demand has dropped off less than typically seen, something also noted by no-moat peer MGM. That said, the recovery could be volatile over the coming months, driven by potential additional COVID-19 variants and some waning of strong pent-up demand seen recently from Hong Kong, which represented the majority of visitation during the New Year holiday versus the high-teens percentage the region averaged in 2019. As such, we plan to monitor gaming trends closely and maintain our forecast for 2023 industry gross gaming revenue to reach around 50% of 2019’s level, or more than a 200% year-over-year increase, followed by a near full recovery of prepandemic marks in 2024.

January 2023 Macao industry gross gaming revenue, or GGR, surged to over 40% of 2019’s level (up 83% year over year) versus the midteens level seen during 2021, helped by the removal of travel restrictions on Jan. 8 ahead of the Chinese New Year holiday. The results represent the strongest month of gaming demand since January 2020 (before travel restrictions were fully implemented). This buoys our long-held view that there is a global human-ingrained desire to travel and supports our decision last month to lower the Uncertainty Rating to High from Very High for Macau exposed companies Wynn and Las Vegas Sands. That said, there are factors that could make the recovery volatile over the coming months. First, this year’s January included the New Year holiday, which was in February during 2019, making for a tougher comparison with prepandemic marks for this current month. Also, various reports indicate that the reopening of Macao to Hong Kong in January resulted in the majority of visitation during the New Year holiday coming from that region were versus the high-teens percentage the region averaged in 2019, and it remains to be seen how much of this pent-up demand can endure. Finally, there could be additional COVID-19 variants during the coming months that might impact demand. We plan to monitor gaming trends closely and maintain our forecast for 2023 industry GGR to reach around 50% of 2019’s level, or more than a 200% year-over-year increase, followed by a near full recovery in 2024.

We are lowering our Uncertainty Rating to High from Very High for narrow-moat companies Wynn Resorts and Las Vegas Sands, driven by a rapid easing of Macao's COVID-19 policy over the past month, which we think is likely to endure. We have improved certainty around our existing base-case assumption that industry gross gaming revenue can rebound to 50% of 2019’s level this year versus a midteens level in 2022. We maintain our fair value estimates of $49 for Sands and $107 for Wynn, leaving the latter undervalued, in our view.

COVID-19 continues to materially affect Wynn's Macao operations (40% of estimated 2024 EBITDA), but we view headwinds as transitory after China eased its COVID-19 policy in December 2022. Still, the Macao government continues to heavily regulate VIP play, elevating long-term operational risk. Wynn has outsize exposure to the expected long-term shift away from VIP gaming revenue toward nongaming and mass play. That said, we see an attractive long-term growth opportunity in Macao, with Wynn's high-end iconic brand positioned to participate.

We no longer see Las Vegas Sands' shares offering a compelling risk/reward, after appreciating more than 30% since late October. Sands' shares have reacted positively to recent news of a provisional 10-year gaming license renewal in Macao (66% of precoronavirus EBITDA), supporting the company’s regulatory intangible asset advantage, the source of its narrow moat, as well as some easing of travel restrictions in greater China (reopening of e-visa applications, and reduced quarantine and testing requirements).

This weekend’s news of provisional 10-year gaming license renewals for the six existing Macao operators removes an overhang on gaming operators’ shares. However, the news was expected, and the larger near-term unknown remains the demand impact from China's COVID-19 zero-tolerance policy. We maintain our $49, $107, and $48 fair value estimates on Las Vegas Sands (narrow moat), Wynn (narrow moat), and MGM (no moat), respectively. We rate Sands as near fair value but Wynn and MGM as undervalued. We think shares of all three might remain volatile until China moves further beyond its restrictive pandemic policy, which could occur in early 2023 when new government leadership positions take office.