The market unfairly docks Wynn after a strong quarter. But we see a buying opportunity
Wynn Resorts (WYNN) posted a better-than-expected third quarter on Thursday, with both revenues and profits bolstered by the continued strength of its Las Vegas operations and the post-Covid rebound in Chinese gambling hub Macao. But investor concerns over an unevenness to the Macao recovery sparked selling in afterhours trading, sending Wynn stock down more than 5% — and creating a potential buying opportunity. Operating revenue for the three months ended Sept. 30 increased 88% year-over-year, to $1.67 billion, beating analysts' expectations of $1.59 billion, according to estimates compiled by LSEG. Adjusted earnings-per-share (EPS) came in at 99 cents, outpacing the 75-cent consensus estimate, LSEG data showed. Adjusted property earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) — Wynn's key metric for profitability — climbed 206% year-over-year, to $530.4 million, well ahead of analysts' predictions of $488 million, according to FactSet. Bottom line Overall, Wynn delivered strong third-quarter results. Its two Macao properties are now generating 85% of 2019 levels and on a path toward full recovery, even if Wynn Macao is taking longer to recover than Wynn Palace. But we remain confident that management has the right playbook to stem any potential market-share loss at its one struggling property in China. Meanwhile, Wynn's Las Vegas property remains on fire, tracking to earn about double this year than what it did in 2019, with no signs of a let-up from its high-end customers. The Boston property showed some softness and could be topping out, but we're encouraged by management's plans to expand its footprint in the city in the near future. At the same time, the market is likely overlooking the not-yet-operational Wynn Al Marjan project in the United Arab Emirates, which broke ground this year. The company continues to see this as an exciting opportunity. Despite these positives, Thursday evening's sell-off brought Wynn stock to about $40 below the level at which was trading in 2019. While we understand how macroeconomic concerns about China are weighing on the stock, the company's properties in the country continue to perform — and at a higher margin than in prior years. With the stock trading at about 10-times its 2023 enterprise value to EBITDAR, a roughly two-times discount to its 2019 multiple, we think the stock is too cheap at these prices. And our plan is to seize the opportunity to add to our Wynn position on Friday morning. Quarterly commentary Macao The recovery at Wynn's properties in China's special administrative region of Macao continued with a total EBITDAR of $255 million, representing 85% of Wynn's pre-Covid levels in the casino hub. However, the company's two properties in the region – Wynn Palace and Wynn Macao – are not enjoying an equal pace of recovery. The results at Wynn Palace were robust and the property is firmly on track to return to pre-pandemic profit levels. In 2019, Wynn Palace generated $730 million in EBITDAR. The $177 million in EBITDAR the property generated last quarter at an annualized rate results in roughly $708 million, showing Wynn is back on track. At the same time, the third-quarter margins reported Thursday came in higher than that of 2019, a sign of strong leverage. Wynn Palace last quarter generated $177 million in EBITDAR , which is more than the $162 million earned in 2019 despite less operating revenue. Unfortunately, the recovery at Wynn Macao has been more checkered. That's partly a result of closures related to renovations. There's also the structural issue of Wynn relying too heavily on press junket and VIP customers at the expense of premium mass customers, who are now dominating the gambling space in Macao. In the third quarter of 2023, Wynn Macao generated about $78 million in profits, which when annualized is only $312 million. In 2019, the property earned a total of $649 million in profits, including $139 million in the third quarter. The weakness at Wynn Macao has the market concerned Thursday about a loss of market share. But CEO Craig Billings argued on the company's post-earnings conference call that Wynn can hold share without junkets at a structurally higher margin due to the costs taken out during the pandemic. Las Vegas Even against a tough year-over-year comparison, EBITDAR at Wynn's Las Vegas property increased 12%, to a new third-quarter record of about $220 million. Management also noted that its top-line trends in Las Vegas have continued to be strong through October, with "healthy" gross gaming revenue and strong RevPar (revenue per available room) growth. The company continues to point to high-profile events like the upcoming Formula 1 Grand Prix and NFL Superbowl as part of a pipeline generating strong forward group demand. For the former event, the company said it expects to exceed its all-time hotel revenue record by about 50% for the three-day period beginning Nov. 17. Encore Boston Harbor Wynn's Boston property proved relatively stable, even if disappointing with EBITDAR of $60 million coming in about 1% lower on the year prior. Wynn blamed some of the decline to construction of a major tunnel near the property, but the company said it's feeling the same macroeconomic pressures as other regional operators. Still, Wynn said its Boston business accelerated in October with month-over-month growth in slot handle, table drop and strong growth in RevPar. Wynn Interactive The company continues to take a disciplined cost approach to its digital gaming platform, focusing only on U.S. states where it has a physical presence. As a result, Wynn saw its "burn rate," or losses, improve sequentially to $5 million, down from $15 million in the second quarter. Balance sheet Wynn said Thursday it had repurchased $56.2 million worth of shares in the third quarter, at an average price $94.11 each. It's a small figure but worth noting given the company did not buy back any stock in the second quarter. When a company that does not regularly repurchase stock makes such a move, it's generally a sign of confidence in the future and a dislocation in the market. In this case, management explained tonight that it will buy back stock when it's "mispriced as we believe it has been." Wynn announced the resumption of a dividend earlier this year, paying out 25 cents per share quarterly. (Jim Cramer's Charitable Trust is long WYNN. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . 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The Wynn Resorts logo stands illuminated as people sit by the fountain at the Wynn resort in Macao, China. Pual Yeung | Bloomberg | Getty Images