MORGAN STANLEY: Here's how Wynn Resorts could double

Wynn Resorts could see its share price double as the company grows its market share in Macau, according to research by Morgan Stanley.

Wynn currently owns two casinos in Macau — the Wynn Macau opened in 2006 and the Wynn Palace opened in 2016.

“We believe that WYNN can take greater market share in Macau than the market is currently discounting,” a team of analysts led by Thomas Allen noted.

“With potential for greater market growth, higher margins, and a beat-and-raise driven re-rating, we see 20% upside to our WYNN base case and 100% upside to our bull case,” they said, taking a different view from the street consensus that forecast minimal gains in market share.

The team was bullish on Wynn’s prospects in Macau based on three factors: Google search trends, favourable market trends and Wynn’s historical performance in Macau.

“Google searches for WYNN’s Macau properties have recently surpassed Galaxy and MPEL, a potential leading indicator for much higher market share,” they noted.

Next comes Macau’s untapped market, which is another part of their bull case.

“Macau’s annual penetration ratio (calculated as the number of Chinese visitors to Macau divided by China’s population) was just 2.6% in 2015,” they noted, “significantly below the 13% penetration of US visitors to Las Vegas.”

Finally, Wynn’s trackrecord of strong performance is also encouraging to these analysts.

“In Wynn Macau’s first 4 quarters of operation, it averaged 15.4% market share, nearly 240bps higher than the 13.0% achieved in its first full quarter in 4Q06,” they noted. “This is the largest increase of precedent major casino openings in Macau.”

The analysts also presented their bear case, a 45% downside from current price, which could primarily result from a deceleration in the growth of VIP and mass market gaming revenue.

Wynn reported diluted earnings per share of $US2.38 for fiscal year 2016, as against $US1.92 in 2015. Revenues in the fourth quarter of 2016 increased 37.3% to $US1.3 billion, which the company attributed primarily to $US418.7 million in revenues from Wynn Palace.

Wynn shares are up more than 3% on Monday.

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