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Despite the horror show that is Macau, casino and hotel heavyweight Wynn Resorts (WYNN) still managed to beat estimates by $0.25 a share in the fourth quarter. There’s a lot to examine as far as Wynn goes, but before we get into number crunching I want to discuss exactly what’s happening in Macau and why.
Companies with Chinese exposure face myriad challenges. The first reason is that everything that happens in China is motivated by one overarching concept. Every day, Chinese leaders wake up with the same problem – how to feed, clothe, and shelter 2 billion people. That’s a Herculean task and it is one that never, ever stops. It determines almost everything China does.
China Cracks Down
In regards to gaming, China has been cracking down on corruption. The reason is that it does not want those 2 billion people seeing wealthy Chinese folks living it up in Macau, and risk getting them outraged and talking about revolution. So they crack down on corruption and that scares away all the high-rollers.
And thus, we have Macau.
And in case you thought I was joking about China not caring about how this affects business, we’re talking about Steve Wynn here. Steve “Las Vegas Is Practically Named After Him” Wynn doesn’t even get a break in China.
Wynn Resorts Earnings Reflect the Pain
The Wynn Resorts earnings report reflected fourth-quarter revenues at $947 million, down 18% from $1.13 billion a year earlier, thanks to a 27% decrease from where? Macau. Thus, property cash flow (EBITDA) fell 18% to $288 million. Wynn Resorts’ entire fiscal year mirrored this nightmare, with revenues down 25% from $5.43 billion to $4.07 billion. Property cash flow fell 33% to $1.19 billion.
So while we can’t exactly cheer about any of this, at least the Wynn Resorts earnings report in the fourth quarter showed a slightly improved trend in declines compared to the full year. Wynn did actually make money in fourth quarter. Profit came in at $87 million, albeit down from $109 million.
When we compare Macau and Vegas, you can see the stark differences.
In Macau, Wynn Resorts’ fourth-quarter revenues were $556 million, a 27.0% decrease from $761 million a year earlier. Property cash flow was $160.1 million, down 33 % from $241 million. Yes, the huge declines came from the VIP segment. Table games turnover in that segment was $13 billion, which sounds fantastic, except for the fact that it was $20.7 billion during the same period a year earlier.
Stock Is Cheap Now
It’s also noteworthy that Wynn Resorts had 96.3% occupancy in Macau. Again, that’s not awful, although it is down from 98.6%. It shows the impact that high rollers and VIPs have on results.
Wynn Resorts has plenty of cash with $2.3 billion on the books. Debt is $9.2 billion but remains manageable, albeit at an average interest rate of almost 7%.
I think if you are considering jumping into Wynn Resorts stock, now might be the time. We may be in the midst of a Macau bottom, and with the stock at $60, it is 20% off its low and 60% off its 52-week high (and 75% off its all-time high).
I think there is limited downside here. Wynn Resorts stock was even up on a day when the market got hammered.
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