The outlook for Wynn Resorts hasn't been this good since the pandemic started

Published Wed, Feb 8 20237:49 PM ESTUpdated Wed, Feb 8 20237:51 PM EST

Wynn Resorts (WYNN) reported promising fourth-quarter results Wednesday and even better guidance as the casino operator looks to profit from China's reopening. Operating revenue fell 14.6% from a year ago, to $1 billion, ahead of analysts' expectations of $958 million, according to estimates compiled by Refinitiv. Adjusted property earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) — Wynn's key metric for profitability — increased 31% year over year, to $195 million, topping forecasts of $182 million. Earnings-per-share was an adjusted loss of $1.23, steeper than the loss of $0.91 per share predicted by analysts. Bottom line Earnings missed the mark this quarter, but the blame is squarely on the many Covid lockdowns in China late last year, which hit Wynn's key Macau luxury hotel and casino. Now that China appears to be fully reopening from the pandemic, we're focused on the company's better-than-expected operating revenue and adjusted EBITDAR results as the losses recorded in China that impacted the bottom line are set to flip to profits. Management reported impressive results in the region for the month of January: The company delivered its strongest EBITDAR performance since the onset of the pandemic, approximately 4 million of normalized EBITDA per-day. However, none of this is factored into the reported results as they reflect a period ended in December. This is why we give Wynn a pass on the bottom-line miss. Along with a rebounding Macau, the casino operator's Las Vegas and Boston operations posted strong results that have continued into the current quarter. The near-term outlook for Wynn is as bright as it's been since the start of the pandemic. As a result, we are raising our price target to $125 from $100. However, with shares up 21% year-to-date before accounting for the roughly 3% jump in the after hours Wednesday, we are maintaining our 2 rating for now. We will look for a better opportunity to buy shares on a dip. It's not our practice to chase a strong move in such a short period of time. Fourth-quarter results by property Macau The market is looking past the Macau EBITDAR results since the company's operations in China were almost non-existent in the fourth quarter. All the focus, therefore, was on management's commentary. We expected to hear good things, given what the team has been able to do in the United States once the lockdowns were lifted. And we weren't disappointed. During the recent Chinese New Year, "mass table drop" — the amount of cash that is deposited in a gaming table's drop box plus cash chips purchased at the casino cage — reached 95% of 2019 Chinese New Year levels. Moreover, in the month of January, Wynn's normalized gross gaming revenue market share was in line with 2019 levels, putting to bed any belief that Wynn is solely a VIP-focused operator. As for non-gaming dynamics, hotel occupancy reached 96% and tenant retail sales increased 34% versus Chinese New Year 2019 levels. Las Vegas Wynn Las Vegas delivered a fourth quarter adjusted EBITDAR record with broad-based strength seen across casino, hotel, food and beverage, entertainment and retail — all of which the team said were well above fourth-quarter 2021 levels. That's despite the difficult comparison resulting from the unleash of pent-up demand. Importantly, the team said the strength of recent quarters has continued into the current quarter and that forward-looking indicators "remain quite strong despite well-known macro concerns as room bookings are pacing at or above pre Covid-19 levels on substantially higher [average daily rates]." For the full year, Las Vegas generated $816 million of normalized adjusted property EBITDA, and management said it's "confident that this is an all-time record for a standalone Las Vegas Strip property". Encore Boston Harbor The Boston property generated record gross gaming revenue with strength seen across the casino. A strong launch for Encore Boston Harbor retail sports betting operating is also a plus. Over its first six days, it generated a little over half a million in handle (the total amount of money bet) per day, or about 80% of the average daily handle generate at Wynn Las Vegas. Wynn Interactive The overall EBITDA burn rate at Wynn's digital gaming platform increased to $28 million in the quarter, with the team attributing the increase to "a well-publicized World Series bet that went against us." This is likely a reference to " Mattress Mack ," who bet $1 million on the Houston Astros at 12-to-1 odds. We would congratulate him had the Astros not been playing the Philadelphia Phillies. Adjusting for this one wager, the EBITDA burn rate would have been "roughly flat" sequentially, which at about $18 million — like we saw in the third quarter — means it would have been slightly better than expected. Management continues to see the upcoming legalization of sports betting in Massachusetts as a catalyst due to its casino footprint and recently launched retail book. Wynn Marjan The team provided a brief updated on the progress it is making with the Wynn Marjan project in the United Arab Emirates, which is in the late stages of programming and expected to be driving piles for the foundation of the property by the middle of the year. Renderings, programming and plans are expected to be released to the public over the next few months. Balance sheet/cash With the previously announced sale-leaseback transaction for the real estate of Encore Boston Harbor completed on Dec. 1, 2022, Wynn received gross proceeds of $1.7 billion and exited the quarter with $3.65 billion in cash and cash equivalents on the balance sheet, plus another $837 million in borrowing capacity under the Wynn Resorts Finance Revolver. Management opportunistically repurchased 82,900 Wynn shares for $4.9 million, at an average price of $59.08 a share in the fourth quarter. With the fourth-quarter activity, management returned a total of $171.3 million to shareholders via the repurchase of 2.956 million shares. (Jim Cramer's Charitable Trust is long WYNN. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. 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Wynn Las Vegas remains closed as a result of the statewide shutdown due to the continuing spread of the coronavirus on April 27, 2020 in Las Vegas, Nevada.

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Wynn Resorts (WYNN) reported promising fourth-quarter results Wednesday and even better guidance as the casino operator looks to profit from China's reopening.