Wynn Resorts Ltd

On June 4, Starbucks (SBUX) announced that its executive chairman, Howard Schultz, would be stepping down on June 26.

Carnival, which is a US-based cruise company and the world’s largest travel leisure company, was the S&P 500’s top loss on June 5.

Last week marked the end of earnings season with 99% of companies in the S&P 500 having reported.

With over 9,000 hotel rooms, Sands China (LVS) has the largest share of the total hotel inventory in the Macao region, at 60%.

Analysts seem to be favoring MGM Resorts (MGM) stock over the other major casinos. Of the 17 analysts tracking the stock, 16 of them recommend a “buy.”

A weakness in the Chinese economy could adversely affect the spending capacity of the Chinese people, which could lead to fewer visitors at Macao.

Macao’s casinos are trying to change Macao from a gaming-only destination to more of a Las Vegas–like destination.

Macao’s annual inflation as measured by the composite consumer price index rose 1.03% YoY (year-over-year) in July 2017.

In 2000, the unemployment rate in Macao peaked at 7.0%. Since then, tremendous growth in the gaming industry has helped reduce unemployment.

For July 2017, visitor arrivals increased 4.4% YoY to 2.9 million visitors. However, on a month-over-month basis, visitor arrivals increased 22.7%.

Macao’s gross gaming revenue growth in the past four months has many analysts believing that the growth is driven by the shift to the mass market.

For the first quarter of 2017, VIP gross gaming revenues rose 16.8% YoY (year-over-year) to MOP 35.6 billion.

According to the Gaming Inspection and Coordination Bureau, Macao’s gross gaming revenues have risen 29.2% YoY to MOP 23.0 billion ($2.9 billion).

Stocks of major Macao casinos have been on the rise since September 2016 when casino revenues started rebounding.

On August 15, Canaccord Genuity upgraded VF Corporation (VFC) to a “buy” from a “hold” and raised the target price to $73 from $58.

Analyst recommendations Analysts favor MGM Resorts (MGM) stock over other major casinos’. All 20 analysts tracking the stock recommend “buy.” Seven (35%) of these analysts have “strong buy” recommendations, while the remaining 75% have “buy” recommendations. For Melco Resorts & Entertainment (MLCO), 15 (68.2%) of the 22 analysts tracking the stock recommend “buy,” and 31.8% […]

Visitor arrivals increase In May 2017, visitor arrivals rose 3.7% YoY (year-over-year) to 2.6 million visitors. However, month-over-month, visitor arrivals fell 6.3%. Visitor arrivals have been improving since September 2016, except in February 2017, when they fell 5.6% to 2.5 million visitors. In the first five months of the year, visitor arrivals in Macao rose 6.3% […]

Current industry valuation As of June 23, 2017, the Macao casino industry’s valuation stands at 12.1x. However, the average valuation for 2017 is much lower, at 11.3x. However, this valuation is a definite improvement from the lows seen in 2015, when the industry valuation averaged at 9.6x. The industry saw its highest valuation of 16x […]

China: The key market The Macao region relies heavily on the Chinese mainland, as it garners a huge majority (about 67%) of its visitors and VIP gamers, from China and its neighboring countries. The weakness in the Chinese economy will adversely affect the spending capacity of people in the country, which could lead to a […]

New inventory The new integrated resorts opened last year by Melco Resorts & Entertainment (MLCO) and Wynn Resorts (WYNN), and those slated to open in the next two years, are set to increase Macao’s hotel inventory by more than a third. At the end of April, Macao had approximately 37,000 rooms. This figure is expected […]

Inflation rate Inflation is an overall rise in the price of goods and services in an economy, leading to the fall in purchasing power of money. Macao’s annual inflation, as measured by the composite consumer price index, rose 0.95% YoY (year-over-year) in May 2017, higher than the 0.8% increase seen in April. Macao’s inflation has […]

Unemployment rate The unemployment rate indicates the percentage of the labor force that is currently unemployed but actively seeking employment. In 2000, the unemployment rate in Macao peaked at 7%. Since then, tremendous growth in the gaming industry has helped reduce employment in Macao. Unemployment averaged 3.8% between 1996 and May 2017. Between January and […]

Increasing market In the past four months, Macao’s gross gaming revenue has grown. Many analysts believe that the growth is not coming from cannibalization of existing casinos, but growth in the overall market size due to a shift to the mass market. Macao’s revenue grew 18% YoY (year-over-year) in February and March, followed by a […]

VIP revenue driving short-term growth The recent growth in Macao casino revenue has been driven by the VIP segment. In the first quarter of 2017, VIP gross gaming revenue grew 16.8% YoY (year-over-year) to 35.6 billion Macao patacas. The VIP segment is also showing good signs. The repayment cycle has been maintained at a healthy 20 […]

May revenue marks a high point According to the Gaming Inspection and Coordination Bureau, Macao’s gross gaming revenue has risen 23.7% YoY (year-over-year) to 22.7 billion Macao patacas, or $2.8 billion. The revenue growth beat analysts’ estimate by a wide margin. Analysts had forecast Macao’s May revenue to grow 16.5% YoY. May marks the tenth consecutive […]

Macao’s unemployment rate was as high as 7% in 2000. Growth in the tourism and gaming industry helped to curb the high rate.

Macao’s casinos reported their seventh consecutive month of revenue growth in February 2017. Casinos’ February revenues rose 18% year-over-year (or YoY) to ~$2.9 billion.

Macao casino stocks continued to gain value in March 2017. In the month, Wynn Resorts (WYNN) was the biggest gainer with a 19.9% rise.

Bond markets are experiencing rising yields due to higher economic growth expectations. However, the 10-Year Treasury yield was still low at 2.4% on March 29, 2017

As of January 3, 2016, the Macao casino industry valuation stands at 12.6x. This valuation is lower than the industry average valuation of 12.05x since February 2008.

Macao casinos’ $28 billion investment in integrated resorts is set to change the city’s gaming business.

As VIP business continues to remain sluggish, casinos are increasingly turning their attention towards the mass market.

Sands Parisian opened its resort in September 2016 and has been leading the mass market recovery ever since.

The annual inflation in Macao fell to 1.5% in November 2016.

For September 2016 through November 2016, the unemployment rate stood at 1.9%.

For November 2016, visitor arrivals remained unchanged as compared to November 2015 and fell 3.4% month-over-month to 2.6 million visitors.

After rising for four consecutive months from August to November, Macao casino stocks posted losses in December.

Macao casinos’ $28-billion investment in integrated resorts will change the city’s gaming. Capacity additions should increase the number of slot tables too.

Wynn Resorts opened its $4.1 billion Wynn Palace on August 22, 2016, and this may have directly contributed to Macao’s casino industry recovery in August.

As VIP business remains sluggish, casinos are increasingly turning their attention to woo mass market.

Macao’s unemployment rate reached 7% in 2000. Growth in tourism and gaming helped curb high rates, bringing the average down to ~3.9% from 1996 to May 2016.

The annual inflation in Macao fell to ~2.1% in July 2016. Inflation has, in fact, been on a declining trend in the region since February 2016.

After 26 consecutive months of declining revenues, Macao gaming revenues have finally shown a small spurt of growth.

Macao, the largest gaming hub in the world, has seen big growth in the past decade but has also seen declines since China imposed restrictions in 2014.

Icahn Enterprises (IEP) owns 68% of the outstanding stock of Tropicana Entertainment through Icahn Enterprises Holding LP (IEH).

As of December 10, 2015, the Macao casino industry’s valuation stands at 12.9x. This is close to the industry average valuation of 12.5x in April 2008.

Casino operators that have opened resorts on the Cotai Strip are gaining market share at the expense of those who haven’t.

Macao casinos’ gaming revenues remained flat at -0.1% in February 2016. February marked the 21st consecutive month of falling revenues.

Introduced in September 1993, the MFS Growth Fund (MFEGX) has witnessed several market cycles. MFEGX was an above-average performer among the 11 funds in this review.

Wyndham Worldwide’s Wyndham Exchange and Rental segment is its most geographically diversified business segment, with a presence in over 100 countries.

In 2014, the US accounted for two-thirds of the rooms in Wyndham Worldwide’s total portfolio, followed by the Asia-Pacific at 16.5% and Europe at 8.2%.

Wyndham Worldwide is considered the world’s largest hotel franchiser. It owns the world’s largest vacation ownership and exchange network.

As of December 10, 2015, the Macao casino industry’s valuation stands at 11.10x.

With over 9,000 hotel rooms, Sands China (LVS) has the largest share at 60% of Macao’s total hotel inventory.

Macao has seen extraordinary growth in the past decade and a half. It has also seen a similar fall ever since the Chinese government imposed anti-corruption restrictions in 2014.

The top performer in all periods except the three-month period, the T. Rowe Price Blue Chip Growth Fund rose by 9.9% in October over the previous month.

The Las Vegas Sands is focusing on controlling costs in the already weak Macao region. It generated better cash flows as it focused on the higher margin mass and non-gaming segments.

The weakness in the Macao market continues as the region sees gaming revenues decline for the 16th consecutive month as of September 2015.

Wynn Resorts’ (WYNN) third quarter numbers missed most Wall Street analysts’ estimates. The company’s revenues for the third quarter fell to $996.3 million.

Wynn Resorts’ VIP segment’s turnover fell by a 51% to $12.2 billion, from $25 billion in 3Q15. Mass market revenues fell by 13.7% to $1,197 million.

The third quarter earnings call from Wynn Resorts disappointed investors. The company’s already weak stock fell by more than 7% in after-hours trading.

The peers are way ahead of Wynn Resorts based on the price-to-sales ratio. The ETFs outperformed Wynn Resorts based on the price movement and PE ratio.

As of October 12, 2015, Las Vegas Sands’ (LVS) valuation multiple stands at 11.7x. This is lower than its average forward EV-to-EBITDA multiple of 16.14x.

Las Vegas Sands is expected to continue reporting grim earnings in 3Q15.
Analysts expect LVS to post a year-over-year decline in earnings per share and revenue, driven by weakness in business.

The gaming industry has been heavily dependent on Macao, and the Chinese economy’s troubles don’t seem to be going away soon. Companies are finding new destinations in Japan and Korea to develop the next Macao.

Las Vegas Sands (LVS) stock remained relatively flat or slightly lower in July and August. But the steepest fall came in September, dragging the stock down about 18% in a short time span.

Las Vegas Sands (LVS) had a difficult second quarter, missing both top line and bottom line estimates. The top line fell 19.4%, while operating income fell 28.3%.

Though the energy sector of the SPDR S&P 500 ETF gained the most on Friday, October 2, 2015, the top gainer of the day was Wynn Resorts.

The rout in Chinese stocks was only a matter of time. It’s clear that this wasn’t a bull market due to fundamental reasons.

The SPY rose 0.54% on September 10. US investors, despite the Fed’s upcoming rate hike decision, were calm. All SPDR sectors except utilities rose.

Energy stocks continued their upward movement for the fourth straight day, and the SPDR S&P 500 ETF fell by 0.81% on August 31.

Macao’s shift from VIP gaming to the mass gaming market and non-gaming revenue is expected to benefit Macao in the long run.

In May 2015, Galaxy Entertainment doubled its capacity with its two new projects: Galaxy Phase 2 and Studio City.

The Macao strip has seen a slump in the number of visitor arrivals since the Chinese government’s strict crackdown on corruption.

After witnessing a decade of exceptional growth in revenues, the Macao casino industry is going through its worst fall with July marking 14 straight months of declining gaming revenues.

Macao casino revenues have been falling ever since the Chinese government imposed stricter regulations in June 2014.

From the perspective of monetary policy, a strong rate of economic growth is required for a central bank to tighten policy.

On July 23, 2015, Skyworks Solutions declared its 3Q15 results and reported $810 million in revenues compared to $587 million in 2Q14.

A major percentage of visitors at the Macao casinos are from China. In May 2015, the visitors from China contributed to about 66% of the total arrivals.

The gaming market in Macao has seen a steep fall in the past year due to a fall in the number of VIP or high-net value visitors in the city.

Macao’s gaming revenue per visitor was at 999.6 Macanese pataca in May 2015—a rise of 6% from 942.4 in April 2015. This came after a huge fall in April 2015.

The casino industry in Macao witnessed its 13th straight month of falling revenue in June 2015. For June, the revenue fell by about 36% YoY to $2.17 billion.

April saw the largest monthly increase in consumer spending since November 2014.

Bridgewater Associates started a position in Wynn Resorts (WYNN) during the fourth quarter of 2014.

Ray Dalio’s Bridgewater Associates filed its fourth-quarter 13F in February 2015. In 4Q14, the fund had opened four new positions.

When inflation decreases, consumers have greater purchasing power and a higher spending capacity. This is a positive sign for casino resort companies.

Macau’s average gaming revenue per visitor is ~$1,200–$1800, roughly 8–10 times higher than the Las Vegas Strip’s average gaming revenue per visitor.

Macau’s restriction on using China UnionPay debit cards at casinos to curb illegal money flow could be a factor in February’s drop in gambling revenues.

The US unemployment rate increased slightly in January to 5.7% compared to 5.6% in December. The number of new jobs in January was expected to be 234,000.

The US consumer sentiment index was 98.1 in January, up from 93.6 in December. This is an 11-year high, the highest on a final basis since January 2004.

Real disposable income increased 3.7% year-over-year. This boosts consumer buying power and means consumer spending in leisure activities may increase.

Revenue per available room (or RevPar) was $122.03 in January 2015, up 10.2% year-on-year. RevPAR increased on account of pricing improvements at the Strip.

MGM’s share price hasn’t been impacted much by the anti-corruption campaign in China. The campaign took a toll in 3Q14. Its business has ~33% exposure in Macau.

MGM derives one-third of its revenue from China. It witnessed a significant decline in revenue and earnings due to a lack of VIP participation.

Hotel revenue at MGM’s wholly owned domestic resorts for the three months ending December 31, 2014, increased 6% YoY.

For 4Q14, the net revenue was $2,386 million—down by 5.1% on a year-over-year, or YoY, basis. On a quarter-over-quarter basis, net revenue fell 4%.

MGM Resorts (MGM) was founded in 1986. It’s based in Nevada. It’s one of the leading global hospitality and entertainment companies.

Chilton Investment Company decreased its position in Wynn Resorts (WYNN), which accounted for 1.25% of the fund’s 3Q14 portfolio when compared to 0.13% in 4Q14.

Chilton Investment has invested more than $18 million in Endo International (ENDP), which now represents 0.65% of the hedge fund’s total portfolio.