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Brean Murray: Reiterate 'Buy' On Wynn Resorts (WYNN), Solid Macau Trends Should Offset Weaker Las Vegas

 May 08, 2012 11:13 AM

(By Balachander) Wynn Resorts Ltd. (NASDAQ:WYNN) shares were reiterated as "Buy" by Brean Murray, Carret & Co. analyst Ryan Worst, who continues to recommend the stock given the casino resorts operator's attractive 2012E FCF yield of 7 percent and potential for significant growth with the addition of Wynn Cotai.

Worst noted that Wynn reported solid first-quarter results in Macau (adjusted for low hold) but like its competitors showed some weakness in Las Vegas. The analyst views Macau growth trends as improved from 4Q given the negative impact of hold pct. in the quarter vs. positive impact in 4Q.

Wynn's quarterly revenue grew 4 percent YoY to $1.34 billion with Macau growing 10 percent to $960 million and Las Vegas declining 8 percent to $363 million. The decline in Vegas was primarily due to unusually high hold percentage last year, the analyst noted.

[Related -Wynn Resorts, Limited (WYNN): Strength in WYNN and the Parabolic Price Arc]

Las Vegas EBITDA declined 24 percent to $101 million compared to Worst's forecast of $108 million. The shortfall was primarily driven by a RevPAR decline of 4 percent versus Worst's forecast of a 3 percent gain. Wynn's effort to hold up prices resulted in lower than expected occupancy as the market remains competitive especially with the weak convention calendar in 1Q, the analyst said. 

Worst said construction on Wynn Cotai should get underway soon with the buildout expected to take about 3.5 years. "It seems that the price tag could increase from the original expectations of $2.5-$3.0B but Wynn's ROI of over 70 percent in Macau thus far provides us with confidence in our 25 percent ROI forecast in Cotai," the analyst wrote.

[Related -Wynn Resorts, Limited (WYNN): Chart Shows This Casino Stock Is Set For A Double-Digit Pop]

The analyst, who has a price target of $153 on the stock, reduced 2012 EPS estimate for the company to $6.39 from $6.61 and 2013 EPS estimate to $7.23 from $7.43. 

The stock, which has been trading in the 52-week range of $101.02 to $172.58, tumbled 6.96 percent to trade at $116.48 on Tuesday.

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