Wynn Stock Setup Encouraging on Macau, iGaming IPO

Posted on: May 11, 2021, 08:47h. 

Last updated on: July 6, 2021, 05:50h.

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

On another dismal day for the broader gaming complex, Wynn Resorts (NASDAQ:WYNN) stock is standing out with a modest gain early Tuesday. The operator is winning praise for encouraging Macau results and the decision to bring its online gaming division public.

Wynn Stock
A man walks in front of the Wynn and Encore on the Las Vegas Strip during the pandemic. Analysts are warming to the stock for a variety of reasons. (Image: Las Vegas Review-Journal)

Upon releasing first-quarter results after the close of US markets yesterday, the Las Vegas-based casino operator said it’s merging its Wynn Interactive unit with special purpose acquisition company (SPAC) Austerlitz Acquisition Corp. I (NYSE:AUS). That deal sets the stage for the iGaming arm to become a freestanding public company while creating value for Wynn investors.

We actually like the transaction because it allows current WYNN shareholders the opportunity to participate in the massive potential growth tied to sports betting/iGaming, while at the same time derisking the event path of obtaining significant market share,” said Stifel analyst Steven Wieczynski in a note to clients today.

He rates Wynn stock a “buy” with a $157 price target. At least three other analysts boosted price forecasts on the Encore operator today, due in part to the news of the Wynn Interactive announcement.

The transaction with Bill Foley’s Austerlitz Acquisition places an enterprise value of $3.2 billion on the online gaming business, or 4.5x estimated 2023 sales. It’s expected to close later this year with Wynn Interactive listing on the Nasdaq under the symbol “WBET.”

Macau Coming to Life for Wynn Stock

These days, it’s easy for analysts and investors to get caught in the hoopla surrounding iGaming and sports betting. But Wynn has only recently been building out those businesses.

The company is still evaluated primarily as a land-based casino operator, one heavily dependent on the special administrative region (SAR) of Macau. Wynn’s first-quarter earnings before interest, taxes, depreciation and amortization (EBITDA) there improved by $44 million on a sequential basis, providing some signs that the world’s largest gaming center is finally turning for the better amid what’s been a frustrating coronavirus recovery.

“We don’t want to sit here and try to say that Macau has reached an inflection point, given investors have been burned over the last year by head fakes around the market’s recovery,” said Wieczynski. “However, when you start to comprehend some of the impressive visitation/spend/profitability statistics that management presented for both April/May (more so May), you have to sit back and wonder if, finally, the market will really start to accelerate from here.”

During the recent Golden Week festivities, Wynn Macau generated $3 million a day in EBITDA, CEO Matt Maddox said.

Don’t Forget Boston

In the US, Wynn runs its namesake integrated resort and Encore on the Las Vegas Strip and Encore Boston Harbor. The New England property got off to an impressive start when it opened in mid-2019. But it didn’t even notch a year of operation before the coronavirus pandemic hit.

Massachusetts also had some of the longest pandemic-related casino closures in the US, hindering operators’ ability to generate profits there. However, data indicate Wynn could be turning a corner in that state.

Encore Boston Harbor posted a “record quarterly EBITDA of $30.4m (23% margin) that beat the consensus (estimate) by 33 percent,” said Macquarie analyst Chad Beynon.

“Thus far in 2Q, daily EBITDA is up over 30 percent compared to 1Q, as WYNN has rationalized the cost base. We are looking for the property to generate a ’21 EBITDA of $194m (vs. $23.2m in 2019),” Beynon continued.