Wells Fargo upgrades Wynn Resorts, says China reopening will help casino stock

Published Tue, Jan 3 20238:27 AM EST

Wynn Resorts should rally as China moves closer to a full reopening, according to Wells Fargo. Wells Fargo analyst Daniel Politzer upgraded the stock to overweight from equal weight. He also raised his price target by $27 to $101. Politzer's new price target implies upside of more than 22% from Friday's close. The stock gained 3.7% in premarket trading following the upgrade. China announced in late December that it would drop quarantine requirements for incoming travelers starting Jan. 8, a win for advocates of economic reopening. Politzer and other market observers see rolled back pandemic restrictions in Macao, a region in the south coast of China, as likely boosting stocks tied to tourism in the area. "We have long held the view that Macau's recovery remains the key driver of WYNN's stock," Politzer said in a note to clients Monday. "For the first time in several years, we see better days ahead as China is pivoting from its COVID-zero strategy and easing travel restrictions." The company having just 2,700 rooms in Macao — the second-smallest among peers — will allow it to reach operating scale more quickly than competitors with larger footprints in the region, he said. On a broad scale, consumers shifted spending from goods to services in 2022 as the economy further reopened and services once deemed unsafe became accessible again. Politzer said Wynn has a "path" to meet 2019 EBITDA levels and exceed them if the recovery resembles what took place in Las Vegas, where customers spent about 40% more during visits. He said there is some uncertainty to that performance given the company's reliance on junkets, or special gambling programs, for important guests. Increased competition in the region could also provide challenges for the stock, he said. Politzer said rising Covid cases or reinstated travel restrictions could also threaten growth. And he said the company could be impacted if the broader Chinese or American economies deteriorate, or if geopolitical tensions between the two grow. — CNBC's Michael Bloom contributed to this report.