MGM MGM Resorts International

Wynn Resorts Ltd. (WYNN) reported third quarter 2011 adjusted earnings of $1.05 per share. The quarter’s earnings missed the Zacks Consensus Estimate of $1.17 but improved considerably from 39 cents earned in the prior-year quarter. On a GAAP basis, earnings per share were $1.01 versus a loss of 27 cents recorded in the comparable quarter last year.

Net revenue climbed 29.1% year over year to $1,298.3 million. The growth was primarily attributable to the business boom in Macau and improved performance at Las Vegas.

Macau Operations

Net revenue at Wynn Macau was $951.4 million, up 41.7% year over year, primarily driven by a significant increase in the table games turnover in the VIP segment, which rose 45.0% from the prior-year period to $31.4 billion.

The VIP table games win in the quarter was 2.95% based on turnover, in line with the expected range of 2.7% to 3.0% and higher than 2.88% recorded in the prior-year quarter.

Table games in the mass market category expanded 16.4% year over year to $704.3 million. The mass market table games win rate was 27.7%, in line with the expected range of 26% to 28% and above 22.8% recorded in the year-earlier quarter.

Average daily rate (ADR) at Wynn Macau was $315, up from $287 in the year-ago quarter. The property’s occupancy level also leaped to 93.7% from 87.6% in the prior-year quarter.

Non-gaming revenues at Wynn Macau increased 32.4% to $102.6 million from the prior-year quarter aided by solid performance from all non-casino segments. Including Encore, Wynn Resorts currently boasts of 509 tables (286 VIP tables, 212 mass market tables and 11 poker tables) and 943 slot machines in Macau.

Las Vegas Operations

Wynn Resorts’ revenue from Las Vegas operations grew 3.7% year over year to $346.9 million. Net casino revenue was $126.9 million, down 8.3% from the prior-year period. Gross non-casino revenue grew 11.1% year over year to $265.9 million, buoyed by improved revenues from all non-gaming segments.

With the global economy recovering gradually, Wynn reported an upside in room revenues, which jumped 18.7% year over year to $89.7 million. ADR also rose 14.2% to $240, and occupancy increased 0.5 percentage points to 88.3%. During the quarter, Wynn had 3.1% of total rooms unavailable because of an air rebalancing project, versus 6.2% of the rooms due to renovations in the third quarter of 2010.

Balance Sheet

Exiting the quarter, Wynn Resorts’ total cash balance was $1.8 billion. Total debt outstanding was $3.1 billion, including obligations of approximately $2.6 billion for Wynn Las Vegas and $513.0 million for Wynn Macau.

Our Take

We remain positive on Wynn Resorts’ strong brand equity and strategic positioning to command a premium rate relative to the overall gaming and lodging industry. Moreover, we remain encouraged by the company’s healthy balance sheet, relatively low capital requirements and ability to execute in a difficult operating environment. The company’s recent quarterly growth was entirely Macau driven as the performance at Las Vegas was sluggish.

On the flip side, the competitive environment at both at Macau and Las Vegas is heating up. The company recently received its long-awaited approval from the Macau Government for development at the Cotai Strip. Here too, Wynn Resorts’ peer Las Vegas Sands Corp. (LVS) intends to come up with a portion of its Parcel 5 and 6 developments in 2012, while another major competitor MGM Resorts International (MGM) is also awaiting an approval for land. These apart, there are domestic players also who are eager to tap Cotai.

Accordingly, we have a Zacks #2 Rank (short-term Buy rating) on the shares. We also reiterate our long-term Neutral recommendation.

 
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