Wynn Resorts (NASDAQ:WYNN) announces its first quarter results on May 7, and analysts don’t know what to think about WYNN stock.
The quarter started with a lockdown in China. It ended with one spreading in the U.S. For now, all analysts can do is guess.
One analyst thinks the casino company drew revenues of $1.76 billion and will bring in $1.84 billion during the June quarter as gambling returns. Another sees $675 million in revenue this quarter and a fall to $217 million next quarter. The consensus revenue number for March is $1.28 billion.
Of 17 analysts following Wynn at Yahoo Finance, nine say hold it, eight say buy. Those at Tipranks are more optimistic. They see the stock rising to almost $120 in a year, from its April 21 opening of $73. Most say buy.
Buy Wynn Stock Now?
The most important number for Wynn, as for any company hit by the pandemic, is its cash balance. In December this was $2.3 billion. JPMorgan Chase (NYSE:JPM) looked at liquidity in April and found $3 billion, enough to fund operations for 1.4 years. This sent the stock rallying.
The news is that CEO Matt Maddox, writing on a local website, thinks the Las Vegas strip could start to re-open in mid-May. He believes the state has passed its peak for hospitalizations and has enough protective equipment to get by.
Wynn stock bottomed on March 18 at about $43 and have been rising since. At $70 they are still down almost 50% on the year. But gaming industry speculators are pounding the table for the stock. They see high rollers returning to its Macau, China casino by summer. They praise a new $600 million bond issue.
Pessimists note that Macau was closed Feb. 5 and re-opened March 20. The shutdown cost about $3 million/day including interest charges. The U.S. operations shut in mid-March and are still closed.
While most analysts have Wynn as either a buy or a hold, Zack’s rates it a “sell.” Earnings Before Income Taxes, Depreciation and Amortization (EBITDA) could be down nearly 90% from a year ago. Executives including Maddox are foregoing all or part of their salary.
Pessimists estimate Wynn’s cash drain at $1.36 billion per quarter. That pays all expenses even without revenue. If Macau generates any revenue during the June quarter, and Wynn can keep a lid on expenses in the U.S., it should get through.
The real danger is a second spike of COVID-19 cases. That danger has InvestorPlace’s Tezcan Gecgil warning long-term investors away from Wynn shares. Any move toward a bailout would halt the dividend, $1 per quarter, and it may take several quarters to bring results back.
John Jagerson and Wade Hansen of Strategic Trader even recommended a short on Wynn April 2. That would have been a losing bet. Wynn shares are up 41% from their April lows.
The Bottom Line
In ordinary times, gambling stocks are conservative investments. Casinos have reliable cash flow and steady profits. They pay solid dividends. You must be a real idiot to bankrupt one.
But these are not ordinary times. People are scared. While there are demonstrators demanding the economy be re-opened, most people are resisting. Government can’t re-open the economy by fiat. People must be willing to go out. It takes confidence to gamble, so gambling may be the last sector to recover from the virus.
This makes stocks like Wynn a speculation. If the optimists are right, you’re going to win big on Wynn. If the pessimists are right, you will lose your dividend in a bailout and could lose your whole bet in a second spike of the disease.
Are you feeling lucky?
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in JPM.