With the stock market returning to a risk-off mood, expect Wynn Resorts (NASDAQ:WYNN) to be under pressure before providing a buying opportunity. Big investors have been betting for two months that Wynn would get its controversial Massachusetts gaming license, opening the $2.6 billion Encore Casino in Everett on time. Now state regulators have ruled that, once Wynn pays a $35 million fine, Steve Wynn’s former wife Elaine and Wynn protégé, Matthew Maddox, who will personally pay $500,000, are “fit and proper” people to run the gambling house.
Wynn himself, who built the company through visionary real estate deals from a single Las Vegas casino, remains disgraced over sexual harassment charges, having sold out his stake at $180 per share and left the board.
The shares were due to open at $141 May 6.
During the sexual harassment scandal against Wynn, Elaine Wynn forced out board members who turned a blind eye but kept Maddox, a banker who has been with the company since its founding in 2002.
As an operating officer, he has earned high marks, especially in the key market of Macau, but he will now be charged with executing on the company’s vision and coming up with his own. As they say in Vegas, it’s his dice.
The fine being paid to open the Everett casino is considered miniscule by local analysts. But Wynn is getting away with it because the resort is expected to draw 8 million visitors per year, with $100 million in taxes going to the state.
The Everett casino will also provide rocket fuel behind Wynn Resorts earnings. That’s why Bank of America and Jefferies recently upgraded the stock. For the first time in months more analysts are saying buy it than just hold it. The company is now expected to earn $8.07 per share in 2020. That’s a forward price to earnings ratio of 17.
Focus on China
The fall in the U.S. stock market lately will shift the focus of Wynn bears to China, where the company has extensive operations — hotels Maddox helped build.
In China, Steve Wynn’s policy of continuing investment in high-end properties continues to pay dividends. Its new Wynn Palace continues to pick up market share while the older Wynn Macau declines. The Wynn Palace, opened in 2016, is now one of the most profitable casinos in the world.
Wynn reported Q1 earnings on Thursday that topped both top- and bottom-line estimates — $1.61 per share in earnings vs. $1.58 on revenues of $1.65 billion vs expectations of $1.64 billion. Despite the beats, the stock is down over 3%.
Because Steve Wynn made huge bets on Las Vegas real estate and secured the company’s licenses in Macau, the company has a long runway of growth and a clear business model. This has made it a favorite of investors in 2019, who have bid the shares up almost 49% since the start of the year.
Unlike other gaming companies Wynn still controls its own real estate.This has sent its debt load to $9 billion but has also given it freedom to operate without interference from a second board.
The Bottom Line for WYNN Stock
With the stock under near-term pressure due to President Donald Trump re-opening the trade war, but this should be a buying opportunity.
If you like gaming stocks, let it fall until the China clouds are lifted, then buy with both hands.
Dana Blankenhorn http://www.danablankenhorn.com is a financial and technology journalist. He is the author of a new environmental adventure, Bridget O’Flynn and the Bear, available now at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.