Expansion Into UAE And London Will Diversify Business And Improve Future Prospects

Key Takeaways

• Wynn Al Marjan and Aspinalls' strategic projects and synergies are expected to diversify operations, driving significant EBITDA growth and future revenue potential.
  
• Strong Las Vegas demand and Macau optimizations improve revenue prospects and maintain margins, ensuring positive impacts on earnings and EPS.
  
• Competitive pressures in Macau, labor costs in Boston, and project uncertainties pose risks to Wynn Resorts’ profitability, margins, and cash flow.

Catalysts

Designs, develops, and operates integrated resorts.

• The UAE development project, Wynn Al Marjan, is expected to drive meaningful EBITDA growth and further diversify Wynn Resorts' business model, positively impacting future earnings and free cash flow.
  
• Demand indicators in Las Vegas, such as gaming volume and transient booking demand, are showing strong year-over-year growth, suggesting potential for increased revenue and EBITDA despite challenging comparisons and external event impacts.
  
• In Macau, optimization efforts such as the rollout of digital tables and expansion of high-value customer amenities are expected to enhance operational efficiencies and support margin maintenance, thereby positively affecting EBITDA and net margins.
  
• Strategic acquisition of Aspinalls in London aims to build brand presence, potentially increasing future revenue by leveraging cross-market synergies with the Wynn Al Marjan project.
  
• Enhanced capital allocation flexibility, with significant liquidity and robust free cash flow, supports ongoing share repurchase commitments, which are seen as value-accretive strategies impacting earnings per share (EPS) favorably.

Wynn Resorts Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Wynn Resorts's revenue will grow by 2.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.0% today to 7.9% in 3 years time.
• Analysts expect earnings to reach $601.8 million (and earnings per share of $5.09) by about March 2028, up from $501.1 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $754 million in earnings, and the most bearish expecting $472 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.1x on those 2028 earnings, up from 18.0x today. This future PE is lower than the current PE for the US Hospitality industry at 23.3x.
• Analysts expect the number of shares outstanding to decline by 5.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.26%, as per the Simply Wall St company report.

Wynn Resorts Future Earnings Per Share Growth

Risks

• The highly competitive market in Macau and pressures on maintaining EBITDA margins could potentially impact the company’s profitability, particularly if market conditions shift negatively. This would directly affect net margins and earnings.
  
• Union-related payroll increases in Boston and potential labor cost pressures pose a risk to operating margins, which could squeeze net margins if not managed carefully.
  
• Lower RevPAR (Revenue Per Available Room) during the F1 event compared to 2023 and the anticipated $25 million EBITDA headwind in Las Vegas due to not hosting the Super Bowl indicate revenue volatility that can affect future earnings.
  
• The uncertainty and range of potential outcomes regarding CapEx projects in Macau due to required government approvals introduce financial unpredictability, which could impact investment returns and ultimately the company’s earnings and net margins.
  
• The substantial investment requirements for the Wynn Al Marjan project, despite securing financing, create execution and financial risks that could impact free cash flow and the company's ability to generate returns, consequently affecting earnings.

Valuation

• The analysts have a consensus price target of $113.456 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 $132.0, and the most bearish reporting a price target of just $89.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $7.6 billion, earnings will come to $601.8 million, and it would be trading on a PE ratio of 23.1x, assuming you use a discount rate of 11.3%.
• Given the current share price of $85.43, the analyst price target of $113.46 is 24.7% higher.
• 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.