Casino Stocks Soar on Wynn's Results
Oct 25th 2012 1:06PM
Updated Oct 25th 2012 1:10PM
Gaming stocks with exposure to Macau are up big today after Wynn Resorts (NAS: WYNN) reported earnings. Macau gaming stocks have been in a bit of a funk through the summer as gaming growth waned, but Wynn gave confidence that growth has returned and is paying back investors with a big dividend.
In the third quarter, Wynn's overall revenue was flat at $1.3 billion, but adjusted net income did rise to $1.48 from $1.05 a year ago. The earnings number was better than expected.
This wasn't really a case of outstanding returns as much as lowered expectations. Revenue in Macau actually fell 4.3% to $951.4 million and adjusted EBITDA fell 1.3% to $292.2 million. You would think that declines in Macau would result in panic, but investors were expecting worse.
For the first time in a long time, Las Vegas was the bright spot for Wynn. Revenue jumped 11.8% in Las Vegas to $388.0 million and adjusted EBITDA rose 29.7% to $110.4 million. The strong results haven't affected trading in MGM Resorts (NYS: MGM) and Caesars Entertainment (NAS: CZR) the way that you might expect because Macau tends to take all of the attention. When these two companies report, we'll see if Wynn's results were an outlier or a sign of steady improvement.
Overall, we can see from the graph below that Wynn's EBITDA has leveled off in Macau and isn't yet showing sustained long-term improvement in Las Vegas. The weak numbers in Macau continue the narrative of gaming moving to Cotai, where Las Vegas Sands (NYS: LVS) and Melco Crown (NAS: MPEL) have their flagship operations.
Expectations for Wynn's current resort should be tempered, but the growth on Cotai should help the company when its resort on gaming's hot spot is complete in 2016.
Cash for shareholders
What has Wynn's stock popping even more than the earnings announcement is some big dividend news. The company will pay a $7.50 special dividend on Nov. 20, 2012, to those holding the stock at the close on Nov. 2. This is in addition to the normal $0.50 dividend.
Wynn will also begin paying a $1-per-share quarterly dividend next year, which puts the stock's yield at about 3.4%. Steve Wynn wants to turn the company into a dividend stock, and with great cash flow generators and fewer growth opportunities, now is the time to do it.
Foolish bottom line
Wynn isn't the growth stock that it once was, but I think we're seeing that operations are stable and investors can expect some improvement as Las Vegas and Macau's gaming markets grow. This will hold the company over until its new resort opens on Cotai, which will potentially double the company's revenue and EBITDA.
Until Wynn joins the party on Cotai, this hot spot will be dominated by Las Vegas Sands, the most valuable gaming company in the world. Learn about the company's opportunities, and the risks it has going forward, in our brand-new premium report on Las Vegas Sands. We're providing a full year of analyst updates to go with it, so make sure to claim your copy today by clicking here.
The article Casino Stocks Soar on Wynn's Results originally appeared on Fool.com.Fool contributor Travis Hoium manages an account that owns shares of Melco Crown Entertainment and Wynn Resorts, Limited. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw. The Motley Fool has no positions in the stocks mentioned above. 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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