Wynn Contending With Costly Coronavirus Closures, but Analyst Sees Some Positives

Posted on: February 7, 2020, 10:03h. 

Last updated on: February 7, 2020, 11:52h.

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

Shares of Wynn Resorts (NASDAQ:WYNN) are being punished Friday after the company released fourth-quarter results. That included a gloomy update on how the novel coronavirus is affecting its Macau operations.

Wynn has Macau issues to deal with, but one analyst sees hope for the stock. (Image: CNBC)

On the company’s conference call Thursday afternoon, CEO Matt Maddox told analysts that due to the shuttering of the Special Administrative Region’s (SAR) gaming properties, a plan announced by the government there earlier this week, Wynn is bleeding $2.4 million to $2.6 million per day in the world’s largest gaming center. Maddox said the bulk of those losses are attributable to payroll expenses, because furloughed workers are receiving paid time off.

Wynn Macau and Wynn Palace – the company’s two venues on the peninsula – combined for $1.08 billion of the operator’s $1.65 billion in fourth-quarter revenue, underscoring the importance of the Chinese territory to Wynn’s top and bottom lines. While the coronavirus epidemic presents obvious near-term hurdles for operators in the Asia-Pacific market, at least one analyst sees some glimmers of hope for Wynn.

On the positive side, Macau results conveyed an encouraging underlying trend, excluding event-driven weakness around the president’s visit in December,” said Stifel analyst Steven Wieczynski in a note provided to Casino.org.

What the analyst is referring to there are comments by Maddox on the conference call indicating that after President Xi Jinping left Macau, and through early January – a period identified as Dec. 23 through Jan. 10 – Wynn’s two venues there combined for $4 million per day in earnings before interest, taxes, depreciation and amortization (EBITDA) in what the CEO called a “normalized” environment.

Some Encouraging Signs

Last October was a decent month for Wynn, too. But operators on the peninsula were hindered in the last two months of 2019. That’s because of visa restrictions implemented in late November related to Xi’s December visit to commemorate the 20th anniversary of the handover of Macau to China from Portugal.

The read-through, in the view of many analysts, is the respiratory illness known as the “Wuhan virus.” That is throwing an unexpected wrench in Macau operators’ efforts to bounce back after a sluggish 2019. They feel the rebound would be underway if not for the epidemic.

“Macau EBITDA reached ~$4M per day in October and was on a similar trajectory prior to the coronavirus outbreak in January,” said Wieczynski of Wynn. “Notably, the strong results were achieved without any meaningful improvement in the market’s VIP segment.”

The number of coronavirus cases on the peninsula remains at 10, but has vaulted to 30,000 globally, with 600 deaths.

Mixed Bag

Wieczynski said Wynn’s fourth-quarter results were a mixed bag, pointing to some softness in the company’s home market of Las Vegas in addition to the challenges in Asia.

The analyst views the company’s balance sheet as strong – a positive when considering some credit firms have recently been fretting about Macau operators against the virus backdrop.

“In the end, while our crystal ball on the duration of the coronavirus impact is no clearer than anyone else’s, we think most would agree the current challenges facing the Macau market are temporary in nature,” said Wieczynski. “Accordingly, we encourage investors to look beyond the current disruptions and, instead, focus their attention on the improving core demand trends being witnessed prior to the virus’ outbreak.”

The analyst has a “buy” rating and a $161 price target, down from $165, on Wynn.