After setting a torrid pace in the first half of the year, Wynn Resorts (NASDAQ: WYNN) stock was added to Deutsche Bank’s Fresh Money List for the third quarter. That’s a collection of equities the bank’s analysts have strong convictions about.
Buy-rated Wynn is one of six consumer equities added to the fresh money list and the only gaming stock. Past performance isn’t a guarantee of future gains, but Wynn’s inclusion on the list is notable because since Deutsche Bank started its fresh money group in the third quarter of 2017, the collection of stocks returned 167% compared to 124% for the S&P 500. Its rolling 12-month performance over the past four quarters was 7.42% better than the benchmark domestic equity gauge, according to the bank.
Specific to Wynn, analyst Carlo Santarelli sees more potential upside for the shares in the second half of 2023 because the stock is inexpensive, there’s more to come in terms of Macau’s rebound, and because market participants aren’t fully appreciating the operator’s Wynn Al-Marjan Island in the United Arab Emirates (UAE), among other factors.
That venue, the first of its kind in the Middle East, is scheduled to open in early 2027. Santarelli has a $140 price target on Wynn, implying upside of about 38% from Friday’s close.
Wynn Inexpensive, Has Multiple Catalysts
Currently, shares of Wynn are discounted relative to long-term averages — a potentially noteworthy trait at a time when investors are concerned about stretched valuations on many of the growth and tech stocks that led markets higher in the first half.
At present, WYNN shares are trading at 9.2x our 2024 adjusted EBITDA forecast. From 2017 through 2018, WYNN shares traded at an average forward EV/EBITDA multiple of 13.0x,” wrote Santarelli. “Said simply, based on our current 2024 EBITDA forecast, should WYNN re-establish its historical multiple, we see $45-85 of potential upside in the shares, should our estimate prove accurate within a 10% range.”
As for the UAE project in which Wynn will hold a minority stake of about 40%, the first casino resort in the region could generate up to $600 million in earnings before interest, taxes, depreciation, and amortization (EBITDA) when it ramps up, but Santarelli argues those expectations aren’t reflected in Wynn’s current share price.
“Based on our property level analysis and our assumptions around the management contract details, we believe the project is worth $10-$14 per share in present equity value, none of which is currently embedded in the stock. We note that our $140 price target does not include any contribution from the UAE development,” added the analyst.
Other Underappreciated Factors
While Macau is rebounding in earnest and its importance to the Wynn investment thesis is widely known, Santarelli says there are several factors at play that could be beneficial to Wynn, but aren’t being adequately appreciated by market participants at present.
Those include the operator’s ability to extract labor expenses, better VIP segment margins and superior gross gaming revenue (GGR) mix, which could position Wynn Macau to top margins notched prior to the coronavirus pandemic.
The Deutsche Bank analysts also observed Wynn’s plans to enhance Encore Boston Harbor and efforts to land a New York City casino permit aren’t getting enough credit from investors.
“We believe WYNN’s development is well positioned within the competitive process and we believe the project, which would be located in the Hudson Yards area of Manhattan, would generate a strong return,” concluded Santarelli.
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