EUR 850.00 For Business Accounts Only

Morningstar | Wynn Facing Near-Term Competitive Headwinds, But Long-Term Competitive Positioning Intact

We plan to reduce our $175 fair value estimate by a low-single-digit percentage to account for near-term VIP competitive pressures in Wynn's Macau (70% of total EBITDA) segment, leaving shares slightly undervalued.

Macau competitors instituted VIP promotional activities (credit extension and favorable junket commissions) to drive awareness of their newly opened high-rolling gaming rooms. Wynn decided not to match these activities, based on its view that these initiatives will prove temporary (as has been the case in the past) and that its high-quality service will sustain its leading competitive position in this market. Narrow-moat Wynn's stance was supported by the 20% overall gaming growth seen in July (above the industry's 10% lift). Still, we anticipate that competitive headwinds will remain in place for Wynn's Peninsula property the rest of this year, resulting in around flat sales levels in 2018 versus our existing 7.5% forecast for the resort. This drop in near-term sales for Wynn's Macau Peninsula resort is mitigated by strength at its other Macau facility, Palace, located on the popular Cotai Strip. We calculate that Palace VIP and mass revenue both increased around 66% during the quarter, well above the industry's respective 21% and 13% mass and VIP growth level. As a result, we plan to lift our 2018 Palace sales forecast toward 30% from 23%, leading our total revenue estimate for the Macau region to drop to around low-double-digit growth from a midteen lift for the year.

We maintain our mid-single digit average annual sales growth forecast over the next 10 years for the Macau Peninsula property, as we believe upcoming room renovations (the first since the resort opened eight years ago) will keep the facility relevant for high-rolling gamers. We also reiterate our long-term high-single digit annual revenue forecast for Wynn's Palace resort, supported by Wynn's plans to add additional entertainment options on undeveloped acreage next to the facility.

Las Vegas (30% of total EBITDA) posted 1% sales growth with expectations for flat levels during the third quarter, followed by 4% plus lift in the fourth quarter. We aren't concerned by the lower growth anticipated during the third quarter, as it is attributable to fewer events across the Strip. Additionally, Wynn commented that 2019 bookings are pacing 20% ahead of internal targets (not defined), driven by strong group business.