Gambling Growth In UAE Boosts Revenue But Shrinking Margins And Pressure In Macau Raise Concerns

Key Takeaways

• Expansion in the UAE and enhancements in Macau may drive revenue growth by capturing new gaming markets and attracting more guests.
  
• Strategic investments in properties and increased share buybacks may boost competitiveness and earnings, supported by improving leverage and lower interest expenses.
  
• Intensified competition and rising expenses in Macau, alongside capital pressures from new projects, could constrain profitability and delay shareholder returns if growth targets aren't met.

Catalysts

Designs, develops, and operates integrated resorts.

• Wynn Resorts' ongoing development in the UAE at Wynn Al Marjan Island is expected to tap into a projected $3 billion to $5 billion gaming market, potentially driving significant revenue growth.
  
• Enhancements in Macau, including expanded gaming areas and new food and beverage offerings, are geared towards capturing additional market share, potentially increasing both revenue and net margins as unique experiences attract more guests.
  
• Strategic investments in existing properties like villa renovations and new dining concepts in Las Vegas are anticipated to bolster revenue and maintain competitiveness in the luxury segment.
  
• The share repurchase authorization increase to $1 billion suggests a commitment to improving earnings per share, as buybacks reduce the number of shares outstanding.
  
• Improving leverage profile and decreased interest expenses due to debt reduction may increase net income and free cash flow, providing further room for capital return or reinvestment in growth initiatives.

Wynn Resorts Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Wynn Resorts's revenue will grow by 3.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 13.4% today to 7.8% in 3 years time.
• Analysts expect earnings to reach $603.6 million (and earnings per share of $5.48) by about November 2027, down from $953.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $721.6 million in earnings, and the most bearish expecting $533.7 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.7x on those 2027 earnings, up from 9.8x today. This future PE is greater than the current PE for the US Hospitality industry at 24.4x.
• Analysts expect the number of shares outstanding to grow by 0.42% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.86%, as per the Simply Wall St company report.

Wynn Resorts Future Earnings Per Share Growth

Risks

• Intensified competitive pressures in Macau, leading to higher reinvestment efforts, could strain profit margins and reduce overall profitability.
  
• Increased operating expenses in Macau, despite being offset by rising business volumes, signify a risk of narrowing net margins if revenue growth doesn't keep pace.
  
• Potential headwinds from Las Vegas' difficult year-over-year comps and limited growth opportunities in current markets may impact revenue growth rates.
  
• The significant capital investment required for Wynn Al Marjan Island and other projects could pressure free cash flow and delay shareholder returns if anticipated growth or ROI is not realized.
  
• Economic factors or underperformance in expected high-growth markets like the UAE and potential new developments could adversely affect projected earnings growth.

Valuation

• The analysts have a consensus price target of $115.62 for Wynn Resorts based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $145.0, and the most bearish reporting a price target of just $93.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $7.8 billion, earnings will come to $603.6 million, and it would be trading on a PE ratio of 28.7x, assuming you use a discount rate of 10.9%.
  
• Given the current share price of $85.8, the analyst's price target of $115.62 is 25.8% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.