Wynn resorts turns bullish on GGR revival in Macau

The stock of Wynn Resorts, Limited (NASDAQ: WYNN), operator of high end hotels and casinos, recorded a 12-month high of $109.50 on September 15th . Since then, the stock has fallen about 7% to close at $102.14 on Friday.

The main reason for the decline in the stock price was the softness in the mass-market gaming volumes at Wynn Palace, the recently opened resort in the Cotai region of Macau. The 14% week-over-week decline in the GGR (Gross Gaming Revenues) in Macau also contributed to the slide in the share price.

However, we are bullish on the stock due to the reasons mentioned below.

The Las Vegas, Nevada-based company reported fiscal 2016 second-quarter net income of $70.39 million or $0.69 per share on revenue of $1.06 billion. In the similar quarter last year, Wynn reported net income of $56.46 million or $0.56 per share on revenue of $1.04 billion. Excluding charges, the Q2 2016 adjusted net income increased to $108.67 million or $1.07 per share, from $74.97 million or $0.74 per share in the Q2 2015.

For the quarter ended June 2016, the Zacks analysts’ anticipated earnings of $0.91 per share on revenue of $1.02 billion. Wynn resorts comfortably exceeded the earnings and revenue expectation of analysts.

Wynn Palace

For the current quarter, the company had projected earnings of $0.82 per share. Since Q3 2015, Wynn resorts had beaten the estimates in every quarter and analysts expect it to do so in this quarter as well. The opening of the Wynn Palace in August mainly contributed to the increase in the tourist arrivals in Macau. The casino with 1,700 hotel rooms, spa, and food-and- beverage outlets is expected to increase the topline of the company in the current quarter. Even though the GGR fell last week, on an overall basis, according to the Gaming Inspection and Coordination bureau of Macau, the GGR increased 1.1% y-o-y to about $2.4 billion in August.

The Las Vegas casino is expected to see a growth in revenue on top of the rising employment in the US and increase in visitors. Thus, considering the improving fundamentals, we believe that the share price would only go up higher in the current quarter.

The stock has technically broken the upper band of the 91 to 102 range in which it was moving for the past five months. The Chaikin money flow oscillator has entered into the positive territory, thereby indicating that the buying pressure is building in the stock. The stock also bounced off the 50-day moving average of $98.50. On the upside, the next resistance for the stock exists at 119.

Thus, a one touch call option with a target price of about $110 can be traded to gain from the forecasted rise in the share price. It is also advisable for the trader to go for a contract which expires on the third-week of October.

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