Posted on: March 22, 2022, 10:28h.
Last updated on: March 22, 2022, 10:28h.
Wynn Resorts (NASDAQ:WYNN) stock is higher by 17 percent over the past week and while the casino operator is still in the red on a year-to-date basis, some market observers believe the shares offer compelling near-term potential.
Still hindered by travel restrictions in Macau and a recent spike of coronavirus cases in mainland China, the operator’s Wynn Macau arm remains under pressure. In normal business environments, Wynn’s operations in the world’s largest casino center drive approximately two-thirds of its earnings before interest, taxes, depreciation and amortization (EBITDA) and revenue.
Lethargy in the special administrative region (SAR) goes a long way toward Wynn’s eight percent 2022 decline and its 41 percent over the past 12 months. However, some analysts see bright spots in Wynn’s options market.
At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security sports a 10-day put/call volume ratio of 0.65 that sits higher than 95% of readings from the past 12 months,” according to Schaeffer’s Investment Research. “This indicates that while calls are still outnumbering puts on an overall basis, the latter have been more popular during the past two weeks.”
Put options are the contracts traders purchase when making bearish bets while calls are the options used to express bullish views.
Wynn Has Some Potential Catalysts
With Macau’s casino industry nowhere close to pre-pandemic form, some investors are overtly bearish on Wynn stock, but the operator has some levers to pull to potentially generate enthusiasm for the stock.
Those include deploying proceeds from the recently announced sale of the real estate of its Massachusetts integrated resort. Wynn announced the sale of Encore Boston Harbor’s property assets in conjunction with the release of its fourth-quarter results. At the end of last year, the company had $2.52 billion in cash and cash equivalents and debt of $11.93 billion.
There’s also speculation that the company is mulling the sale of its Wynn Interactive unit, which could generate additional cash. That rumor surfaced two months ago and the company hasn’t confirmed it, but with costs soaring to stay competitive in the US sports wagering industry and profits slim-to-nil for operators, it’s possible investors would applaud Wynn’s departure from that arena. In this environment, moves to reduce debt would likely be cheered by analysts and investors.
“Wynn Resorts stock offers very little security or consistency from a fundamental point of view. WYNN currently holds $12.04 billion in total debt, and only $2.53 billion in cash on its balance sheet,” adds Schaeffer’s. “The hotel and casino concern also reported back-to-back years of top- and bottom-line declines for 2019 and 2020, with revenues decreasing 68 percent while its net income fell by $2.19 billion for 2020.”
Wynn Stock Showing Value Traits
Valuation alone usually isn’t a reason to buy or sell a stock, but data suggest Wynn has the makings of a value play.
“Wynn Resorts stock trades at a forward price-earnings ratio of 11.39, as well as a price-sales ratio of 2.19, indicating a relatively good valuation. WYNN also reported an 80% increase in revenues and a $1.3 billion increase in net income for 2021. What’s more, the casino name is estimated to grow its revenues by 29.5%, and increase its earnings from -$1.03 to $3.59 in 2022,” concludes Schaeffer’s.
Those points could be signs the risk/reward scenario with Wynn stock is skewed more towards the reward side of the equation.