Wynn Outlines Growth Prospects
Mar 5th 2012 3:52PM
Updated Mar 5th 2012 4:04PM
Shares of Wynn Resorts (NAS: WYNN) have been on a tear recently, due to speculation about the company's upcoming growth plans. Last week, the company outlined a potential resort and casino near the New England Patriots' home in Foxboro, Mass., and for a second we thought the company made another step forward in expanding in Macau.
Football : Gambling :: Apple pie : America
Wynn is betting that a partnership with Robert Kraft and a location across from his football stadium will convince Foxboro residents that he should be allowed to build a resort there. The CEO sent a brochure and 20-minute DVD to residents with renderings and details about the project. Right now, it's slated to be a $1 billion development with 5,000 parking spots and convention facilities. It could bring up to $15 million in new revenue for the community.
This is another example of expanding gaming throughout the U.S., something that largely hasn't helped gaming as a whole. Foxwoods and Mohegan Sun, which attract Massachusetts customers, are already worried about new competition after business fell off during the recession. In a relatively small area we have Las Vegas Sands' (NYS: LVS) Pennsylvania casino, Atlantic City, tribal casinos, and a slew of racetracks in the northeast. Recent earnings reports from Caesars Entertainment (NAS: CZR) , Boyd Gaming, and Penn National show that fighting for regional casinos isn't as profitable as it once was.
An expansion into Massachusetts might be a profitable move for Wynn Resorts, but Las Vegas Sands has proven in Pennsylvania that it isn't like the other opportunity in Macau.
Cotai on the mind
There was excitement in the market on Friday after it was announced that the company's land concession in Macau had been published in the official gazette of Macau. But soon after, the company retracted the disclosure, saying it was published by accident by the company's agent.
Even if it was a mistake, we can read between the lines and assume a land concession deal is likely coming in the near future. Wynn has been waiting on the Macau government to start construction in earnest, and with Sands Cotai Central opening in about a month, the timing seems about right.
In February, Macau gaming revenue rose 22.3% from a year ago to $3.04 billion. This is a decline of 3% from a month earlier, although February is a shorter month.
The growth looks very strong year over year, but revenue has been trading in a consistent band since May of last year, so growth has definitely slowed. This could be due to a longer-term trend of slowing growth or some constrained supply in gaming.
Once Sands' Cotai Central opens, we will see if Macau gets another boost in revenue. The last spike in May coincided with Galaxy Macau's grand opening, and neighbors like Melco Crown (NYS: MPEL) are hoping there's a bump to revenue instead of cannibalization of the market. MGM Resorts (NYS: MGM) and Wynn are hoping to build new casinos in the area, and steady growth will help all resorts on Cotai.
Foolish bottom line
Potentially slowing growth in Macau isn't good for possible expansion, but these casinos wouldn't come online for years, so I'm still bullish on Wynn's potential expansion on Cotai. The release on Friday apparently shouldn't have gotten out, but I think it's safe to say that some news on the resort should come out in the coming weeks.
As for more expansion in the U.S., I'm wearier. Las Vegas Sands spent $800 million to expand into Pennsylvania and generated just $90.8 million in EBITDA during 2011. The payback in other parts of the world is much better, and I'm not yet convinced that Wynn's Foxboro project would be much better.
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At the time this article was published Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his CAPS picks at TMFFlushDraw.Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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