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Wynn Resorts shares jump after Deutsche Bank says concern over China business overdone

Key Points
  • Deutsche Bank analyst Carlo Santarelli upgrades Wynn Resorts to buy and increases his price target, citing accelerating walk-in business after Wynn Palace reconfigures its gaming floor.
  • Shares of Wynn were up after the release of the Deutsche Bank report.
A SkyCab cable car travels past Wynn Resorts Ltd.'s Wynn Palace casino resort at night in Macau, China.
Anthony Kwan | Bloomberg | Getty Images

Deutsche Bank upgraded Wynn Resorts to buy from hold and increased its 12-month price target, citing forecasts of increased mass market volume, or walk-in business, in China and VIP strength.

Shares of Wynn were up 4.3 percent Tuesday after the release of the Deutsche Bank report.

"We believe the mass ramp at Wynn Palace, post the floor reconfigurations, is beginning to accelerate," wrote Deutsche Bank analyst Carlo Santarelli. "Given the strength in VIP and our view of upside Consensus revisions, we feel current levels represent a favorable entry point."

Following the announcement of its second-quarter earnings in July, Wynn Resort shares fell over 7 percent; the stock is down 9 percent over the past month.

Deutsche Bank blamed declines in walk-in business in the second quarter for the July stock slip. Quarter-over-quarter walk-in table performance dropped 5 percent and mass table revenue was flat.

"It's very important that you don't get caught up in the very short-term myopia," CEO Stephen Wynn cautioned during the July earnings call.

"Mass has an awful lot to do with access. … We're literally surrounded on four sides by things that are under construction that will add to our mass."

But with construction nearly complete and Wynn Palace floor reconfigurations in the rearview mirror, the Deutsche Bank researchers raised Wynn's 12-month price target to $150 from $138, representing 17 percent upside from Monday's close.

"We believe the recent changes to the mass casino floor are having the desired impact," said Santarelli. "Our channel checks indicate a decided improvement in mass traffic, a continuation of strong premium mass traffic, and accelerating VIP volumes."