Las Vegas-based Wynn Resorts Limited (WYNN) designs, develops and operates integrated resorts. The company's segments are Macau Operations; Las Vegas Operations; and Encore Boston Harbor. With the steady improvement in the resorts and casino industry, the company exhibited double-digit revenue growth in its recent fourth-quarter earnings release.
However, the prolonged recovery in its Macau operations, which contributed approximately 70% to its revenue and earnings, has stymied its overall growth.
WYNN stock has slumped 34.2% in price over the past nine months and 13.1% over the past six months to close yesterday's trading session at $88.63. In addition, the company recently agreed with Realty Income to sell its Encore Boston Harbor's Land and real estate assets.
Here's what could shape WYNN's performance in the near term:
Sale-Leaseback Transaction
WYNN agreed to sell all of Encore Boston Harbor's land and real estate assets to Realty Income for $1.70 billion in cash, representing a 5.9% cap rate. WYNN will continue to run the hotel at the five-star level for which it is known. In addition, it will engage in a triple-net leasing agreement with Realty Income for Encore Boston Harbor when the transaction closes. The lease will include an initial total yearly rent of $100 million and a duration of 30 years, with one tenant renewal option at 30 years. The company intends to use the transaction proceeds for several of its coming development projects and the potential to retire other debt.
Underwhelming Financials
WYNN's revenue has increased 53.5% year-over-year to $1.05 billion for the fourth quarter, ended Dec. 31, 2021. However, its operating loss came in at $105.62 million. The company reported a $177.19 million net loss, while its loss per share amounted to $1.54.
Poor Profitability
WYNN's 32% trailing-12-months gross profit margin is 106% lower than the 32% industry average. Also, its ROA and ROC are negative 5.9% and 2.1%, respectively. Furthermore, its trailing-12-month cash from operations stood at negative $508.18 million compared to its industry’s $165.21 million average.
POWR Ratings Reflect Uncertainty
WYNN has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. WYNN has a D grade for Stability. The stock beta of 2.33 is consistent with the Stability grade.
Among the 33 stocks in the D-rated Entertainment – Casinos/Gambling industry, WYNN is ranked #24.
Beyond what I've stated above, one can view WYNN ratings for Value, Growth, Sentiment, Quality, and Momentum here.
Bottom Line
Given the steady recovery in the hospitality industry, WYNN reported stable revenue growth in its recent quarterly report. However, analysts expect its EPS to remain flat in fiscal 2022. In addition, the prolonged recovery across its segments due to the emergence of new COVID-19 variants and public health restrictions could further hinder its growth. Therefore, we believe the stock is best avoided now.
How Does Wynn Resorts Limited (WYNN) Stack Up Against its Peers?
While WYNN has an overall D rating, one might want to consider its industry peers, Monarch Casino & Resort Inc. (MCRI), which has an overall A (Strong Buy) rating, and Century Casinos Inc. (CNTY) and Accel Entertainment Inc. (ACEL), which have a B (BUY) rating.
WYNN shares fell $0.13 (-0.15%) in premarket trading Thursday. Year-to-date, WYNN has gained 4.22%, versus a -7.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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