Wynn Resorts Ltd. (WYNN) was the S&P 500’s biggest gainer on Monday after the casino operator received some positive gaming numbers out of the world’s largest gambling center. Investors received the news enthusiastically on hopes that the strong numbers indicate a long-term turnaround for the stock, which plunged more than 40% in 2018.
The firm has desperately needed good news over the last year on both the financial and PR fronts. Having missed estimates in its last three earnings reports and still reeling from the unceremonious departure of former CEO and longtime Las Vegas icon Steve Wynn, the company’s investors are wondering if the news will translate into stronger financials that will keep the stock price aloft in the long term.
Here’s exactly why WYNN stock rallied today – and what it could mean for the firm’s future the rest of 2019…
The News
Wynn participated in the gambling sector’s broader rally Monday after Macau’s Gaming Inspection and Coordination bureau reported that casinos in Macau – the Chinese city typically considered the gambling capital of the world – raked in revenue of 25.8 billion patacas ($3.2 billion) last month. While it marked a 0.4% year-over-year decline, it was still the highest monthly figure of 2019 so far and surpassed expectations by a mile. Most analysts expected year-over-year drops as large as 6% due to the ongoing U.S.-China trade war.
Out of most international gambling operators, Wynn draws 69% of its total revenue from Macau, ranking it among the highest-exposed U.S.-based gambling firms. However, other major gambling stocks also rallied on the news, including Las Vegas Sands Corp. (LVS) and MGM Resorts International (MGM). Their shares gained 3.9% and 3.6% on Monday, respectively.
How Investors Reacted
Once the numbers came out, investors pushed WYNN stock 8.4% higher on Monday from $119.32 per share at the previous close to $129.34. That made it the S&P 500’s biggest gainers on the day, widely outperforming the follow-up IPG Photonics Corp. (IPGP) and BorgWarner Inc. (BWA), which respectively climbed 6.8% and 5.5%. With Monday’s settlement, shares of WYNN stock are now up 30.8% since closing at $98.91 on Dec. 31.
The Bigger Picture
On an individual basis, Wynn is already on the rebound following a difficult 2018. The stock’s 30.8% gain this year comes on the back of a more than 40% decline last year, which was largely due to the onerous allegations of sexual assault against former CEO Steve Wynn.
The casino mogul stepped down from the company in February 2018 following dozens of accusations of sexual misconduct. WYNN stock immediately started nose-diving after the news broke in late January 2018 when shares plunged roughly 18.5% from Jan. 25 to Jan. 29. Despite an overall trend higher by May 2018, the stock soon tumbled again along with the rest of the market and reached a low of $92.01 on Dec. 24.
Putting the PR disaster aside for a moment, it’s impossible to underestimate just how important Macau is not just to Wynn Resorts but also to the global gambling market, which is why any continued strength in the city’s monthly gambling numbers will likely yield a higher share price for WYNN down the road.
Often referred to as the “Monte Carlo of the East,” Macau boasts the most gambling-centric economy in the world. Gaming revenue makes up roughly 50% of it, with overall gaming revenue climbing more than 34% from $28.04 billion in 2016 to $37.59 billion in 2018. That’s compared to Vegas’s measly $11.9 billion in gambling revenue last year.
Furthermore, if Macau’s gaming revenue stays at the $9.34 billion quarterly pace tallied in Q1 2019, the year-end total will largely be on track to match the 2018 total. However, with the upcoming summer months likely to bring an influx of tourism, revenue from Macau’s gambling industry could end up at its highest level since 2014 when it reached $44.16 billion.
This is exceptionally good news when considering Wynn’s over-exposure to the Macau market. Since 69% of the firm’s revenue coming from Macau’s gaming industry, that means roughly $1.17 billion of Wynn’s 2018 revenue of $1.69 billion came from the Chinese gambling mecca. That means any further growth in Macau’s gaming industry – likely considering the upcoming tourist season – will yield further growth in the WYNN stock price.
Looking Ahead
Wynn Resorts is an extremely important gambling player on the global stage. Its high exposure to the world’s largest gambling city means its books mostly move in lockstep with Macau, whose growth in gambling revenue shows no signs of stopping anytime soon.
WYNN still trades far below $146.27, the midpoint of the 52-week range of $90.06-$202.48. For investors considering moving into the stock, now would be a healthy time to do so, especially before more healthy gaming numbers roll in later this year.