Wynn Resorts Among Top Alpha Picks at Goldman Sachs

Posted on: February 13, 2023, 11:15h. 

Last updated on: February 13, 2023, 03:52h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Already up 33.32% year to date, Wynn Resorts (NASDAQ: WYNN) stock got another assist Monday, landing a spot on a Goldman Sachs list of equities with the potential to be big alpha generators this year.

Wynn Resorts
Wynn and Encore on the Las Vegas Strip. Wynn Resorts stock was named a high dispersion name by Goldman Sachs. (Image: Luxury Lifestyle Magazine)

In financial market parlance, “alpha” describes an asset’s out-performance relative to a benchmark. In a hypothetical example, if Wynn rises 50% this year while the S&P 500 gains 20%, the gaming stock would generate 30% worth of alpha.

Higher by nearly 7% over the past week, Wynn stock could further benefit this year as market participants return to stock picking and focusing on company-specific factors over macroeconomic issues.

In a micro-driven market, a high share of the typical stock’s return is explained by company-specific factors, while a macro-driven market means the returns for the typical stock are primarily explained by factors such as beta, sector, size and valuation,” wrote David Kostin, Goldman’s chief U.S. equity strategist, in a report.

Wynn delivered fourth-quarter results last week. Investors appeared enthusiastic about the data from the operator’s Las Vegas Strip venues and Encore Boston Harbor, as well as the 2023 outlook for the company’s pair of Macau integrated resorts.

Wynn Resorts Could Be Dispersion Winner

Goldman Sachs ranked stocks by dispersion scores, which gauges an equity’s volatility and how likely it is to move based on firm-specific catalysts over macroeconomic considerations.

The investment bank published a list of 10 stocks with the highest dispersion scores, on which Wynn ranks eighth and is the only gaming name. The caveat with dispersion is that while the metric may signal opportunity for investors, it’s not a guaranteed upside. It’s possible that high-dispersion names will decline or trade flat.

For now, the key element in Wynn’s year-to-date performance is investor enthusiasm for China’s reopening, which is boosting Macau’s rebound. Operators there are signaling profitability in January, validating the pent-up demand thesis.

“Macau rebounded sharply in early-1Q23 during the Chinese New Year holiday after most significant travel and COVID-19 mitigation restrictions were relaxed in the region, as WYNN’s properties generated $4M of EBITDA per day during the week-long period. Mass table drop was 95% of pre-pandemic levels, and the direct VIP volumes and retail sales surpassed 1Q19 levels by 40% and 34%, respectively, with hotel occupancy of 96%,” wrote Stifel analyst Steven Wieczynski in a note out last week.

Wynn Not Impervious to Macroeconomic Issues

Particularly for risk-tolerant investors, there is an opportunity with high-dispersion names such as Wynn, but that doesn’t mean these companies aren’t vulnerable to macroeconomic headwinds.

Although periods of economic distress have historically coincided with elevated levels of volatility, stock correlation should also spike as market-wide macro factors drive returns across all stocks,” added Goldman’s Kostin.

Specific to Wynn, Macau would have to carry the day for the stock if a US recession arrives because that scenario would likely pinch the operator’s Las Vegas casinos and Encore Boston Harbor.