Wynn Resorts Ltd. (NGS: WYNN). As the number of COVID-19 cases increases, we are worried that new restrictions could hinder WYNN’s recovery. To improve liquidity in this environment, WYNN is cutting costs. It is also drawing on its credit line, and has issued new debt and suspended its dividend. As such, it should have enough cash to operate until the end of 3Q21 even with modest revenue.
On November 5, Wynn reported a third-quarter adjusted loss of $7.10 per share. Reflecting losses at the Wynn Palace and Wynn Macau, the company posted an adjusted 3Q operating loss of $283 million, down from earnings of $178 million a year earlier.
Net revenue fell 78% to $370 million and came in below the consensus estimate of $435 million. Macau revenue totaled $67 million.
Adjusted EBITDA loss was $66 million, versus the consensus estimate of an EBITDA loss of $109 million. Adjusted EBITDA was $397 million in 3Q19.
Net revenue at the Wynn Palace came to $15.7 million and adjusted EBITDA totaled negative $78 million. Consensus estimates for revenue and adjusted EBITDA were $120 million and negative $48 million, respectively.
Revenue at the Wynn Macau fell 89% to $51 million and was $42 million below the consensus estimate of $93 million. The adjusted EBITDA loss was $35 million, narrower than the consensus estimate for a loss of $47 million.
In Las Vegas, revenue fell to $187 million from $400 million, reflecting limitations on customer traffic and suspension of certain nightlife and entertainment options. The consensus estimate had called for revenue of $147 million. Adjusted EBITDA was $20 million, above the consensus estimate for a loss of $9 million. We think the decline reflects a resurgence in COVID-19 cases.
Revenue at the Encore Boston Harbor decreased 34% to $117 million. Adjusted EBITDA was $26 million, up from $8 million in the prior-year period as WYNN benefited from higher table winnings.
Interest expense rose to $145 million from $115 million, while the share count increased slightly, to 106.8 million.
Primarily reflecting lower revenue at the Wynn Palace. Adjusted property EBITDA fell 11% to $1.8 billion, for an EBITDA margin of 26.8%. Full-year earnings fell to $4.08 per share from $6.54 in 2018.
On February 6, 2019, company founder and CEO Steve Wynn resigned and was succeeded by Matt Maddox, the president of Wynn Resorts. We have confidence in Wynn’s management team, particularly Linda Chen in Macau, who has been president of Wynn International since January 2005.
EARNINGS & GROWTH ANALYSIS
Following the company’s disappointing year-to-date results, we are widening our 2020 loss forecast to $18.10 per share from $11.70.
FINANCIAL STRENGTH & DIVIDEND
In the third quarter, the adjusted EBITDA margin was negative 18%, down from positive 24% a year earlier.
To improve liquidity, WYNN is cutting costs, drawing on its line of credit, and issuing debt. As a result, we think it will have enough cash to operate until the end of 2Q21 even modest revenue.
The company has also suspended its dividend. Our revised dividend estimates are $1.00 for 2020 and $2.00 for 2021.
MANAGEMENT & RISKS
On February 6, 2019, the company’s founder and CEO Steve Wynn resigned. He was succeeded by Matt Maddox, president of Wynn Resorts.
Risks to our estimates include the still uncertain impact of the pandemic on the company’s operations, as well as potential new restrictions on the gaming industry by the Chinese government. In addition, WYNN competes against the much larger Las Vegas Sands in both Macau and Las Vegas. Such competition could lead to lower margins and the loss of market share.
Wynn Resorts Ltd. develops, owns and operates casino resorts in Macau and Las Vegas. Wynn’s Macau operations include just over 1,000 hotel rooms, nearly 500 table games and 835 slot machines. Its Las Vegas operations consist of 240 table games, 2,200 slot machines, and 4,750 hotel rooms and suites.
We expect a full recovery in Las Vegas and Macau in 2023. We believe that this multiple adequately reflects the company’s current challenges, including still low customer traffic and prospects for wider-than anticipated losses.
On November13 at midday, HOLD-rated WYNN traded at $91.03, up $4.36.