A Win Wynn: Pair of Bullish Views Has Gaming Stock Soaring in 2020

Posted on: January 15, 2020, 05:04h. 

Last updated on: January 15, 2020, 05:52h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Wynn Resorts, Ltd. (NASDAQ:WYNN) is off to a stellar start in 2020, with gains of eight percent to start the new year, more than quadruple the returns posted by the S&P 500.

Bullish views are boosting Wynn Resorts stock this week. (Image: Getty Images)

The gaming stock’s ascent has been fueled by a pair of bullish views from major investment banks, which have lifted the stock more than five percent over the past week.

Earlier this week, JPMorgan chimed in on Macau, Wynn’s most important market, saying that it’s possible gross gaming revenue (GGR) on the peninsula will be flat or modestly increase year-over-year despite the early arrival of the Chinese New Year. Related festivities star on Jan. 25, earlier than the Feb. 5 commencement in 2019.

We wouldn’t be surprised to see January printing flat or even marginally positive growth in GGR,” said JPMorgan analyst DS Kim in a Tuesday note to clients.

That proclamation could be well-timed for Wynn, a company that relies on Macau for 80 percent of its revenue in any given quarter. The VIP segment in the world’s largest gaming center, a thorn in the side of several operators last year, drives 40 percent of Wynn’s annual turnover.

High Conviction

Adding to the bullish chatter on Wynn was Goldman Sachs, which elevated shares of the gaming company to its “conviction buy” list from a mere “buy” rating. That upgrade, prompted by Goldman’s rosy outlook for Macau this year, came with a price forecast boost to $181 from $157.

That was one of the largest price forecast increases by any sell-side research firm on any stock on Tuesday, when Goldman published that call. Goldman’s $181 call on Wynn is well above the Wall Street consensus of $145.74 and implies upside of 20 percent from where the stock closed today.

The move to “conviction buy” on Wynn is Goldman’s second upgrade of the name in five months.

“Goldman Sachs’s regional Conviction Buy and Sell lists represent investment recommendations focused on either the size of the potential return or the likelihood of the realization of the return,” according to the bank.

Positive on Macau

In anticipation of 2020 providing easier comparisons and a GGR rebound in the second half of the year, shares of operators with exposure to the Chinese territory have recently rallied. But that doesn’t mean valuations are stretched.

“We stay positive on Macau stocks. Despite the recent share rebound, the sector’s valuation still appears inexpensive at 12x 2020E enterprise value/earnings before interest, taxes, depreciation and amortization (EBITDA) (vs. historical average of ~14x), which we view as quite attractive, given limited estimate risks to consensus,” said JPMorgan’s Kim.

Kim added that this year will bring a “cyclical rebound in demand” for gaming in Macau, prompting JPMorgan’s “constructive” view on the related equities.