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Wynn Resorts Is Still Seeking a Big Payoff on Macau Bet


NEW YORK (TheStreet) -- Wynn Resorts (WYNN - Get Report) , controlled by Las Vegas billionaire Steve Wynn, has been operating its Macau resorts for over eight years and plans to open Wynn Palace by the second half of 2016.

The company's operations in Chinese-controlled Macau accounts for most of Wynn Resorts' revenue: In the past quarter, Macau's revenue were 68% of Wynn Resorts' total sales. But the recent slowdown in the progress in Macau's operations has investors wondering why it wants to invest in another casino and resort on this peninsula.

In the past quarter, the company's growth in revenue in its Macau's resorts rose by only 3.2%. In comparison, during the first quarter the company's revenue from its Macau's operations grew by 14.2% and its operating profits by 16.2%.

Its revenue from Las Vegas operations grew by 12.5%, year on year. Moreover, the operating profit margin in Vegas reached 35.5%, while Macau's profitability was 32%. This means, the company's core business in Vegas is turning a higher profit and grows faster than its Macau's operations.

Even though the company was able to reach analysts' expectations on its second-quarter earnings, this was mostly due to the sharp rise in Wynn's profits in Vegas.

Analysts recently cut their 2014 outlook on Macau's casino revenue from 9% to 6%. This lower forecast suggests Wynn Resorts will see low growth in revenue in the coming quarters in it Macau operations.

There is also risk from Macau's investigation of the company's 2012 land deal that paved the way for the $4 billion Wynn Palace casino-resort.

At $202, shares of Wynn Resorts are up 4.2% for the year to date compared with the S&P 500 index, up over 7% for the same period. Wynn Resorts' forward P/E is at 21.9. By comparison, the Hotel/Gaming sector P/E is 30.84. One of the company's rivals, Las Vegas Sands (LVS) has a lower forward P/E at 16.33.

Moreover, Wynn Resorts' enterprise value-to-EBITDA ratio is at 13.77; this is slightly lower than the average Hotel/Gaming sector ratio of 14.1. Las Vegas Sands has a lower ratio of 12.5. This means, Wynn Resorts' current valuation is higher than Las Vegas Sands but is slightly lower than the sector's average.

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