Win Wynn Win - The Best Gamble in Casinos

Margie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Wynn Resorts (NASDAQ: WYNN) is the leading hospitality/gaming company in the world. Let’s take a look at some of its strengths, opportunities, weaknesses, and threats, or what we at the Motley Fool refer to as a SWOT.

Strengths

  • Management- Steve Wynn has proven himself over and over to be the premier CEO of the gaming industry.  Unlike MGM Resorts (ala City Center), he did not load up on debt fueled expansion in Las Vegas at exactly the wrong time.  His track record at Mirage Resorts (which was purchased by MGM (NYSE: MGM) was impeccable, and Wynn truly cares about the company he founded.
  • Excellent dividend play.  Wynn resorts recently announced a $7.50 special dividend to go with its normal 50 cent per share dividend it issues every quarter.  The company also recently announced they were raising the normal dividend to $1 per quarter.
  • Macao has been incredibly strong for the company.  Over 50% of Wynn's profits are coming from Macau right now, and the company is planning a second casino expansion.
  • The premier name in gaming to high rollers worldwide.  Everybody in gaming knows who Steve Wynn is, his casinos have a luxury association amongst the whales.
  • Nevada senate majority leader Harry Reid is firmly in the casino industry's corner.  He plans online poker legislation that would force any online poker company wishing to do business in the United States to partner with the land based casino.  Can anyone say- political giveaway?

Weaknesses

  • The price to earnings ratio nearing 21 implies a good amount of future growth. 
  • Based on all the cash that Wynn is shelling out in the form of special dividends, aside of the expansion in Macao, one has to wonder whether the company has future growth plans.  Generally companies hold onto cash rather than pay dividends if they have a good use for the money.  Also, if there are further expansions the company will have to take on debt rather than use its own cash.
  • Las Vegas- though the company is not nearly as heavily exposed to Las Vegas as MGM, the market has been weak since the financial crisis.

Opportunities

  • THEY'RE opening up a second casino in Macau, to cost four billion dollars.  Steve Wynn is very confident that this will add to the bottom line. 
  • Online poker- Wynn resorts had a deal with Poker Stars, the leading Internet poker company.  Although the deal was nixed in 2011, as the Justice Deparment sued all the online poker providers, now that Barrack Obama has been re-elected expect some deal to legalize online poker to take place in the United States.

Threats

  • An over reliance on Macao might turn negative if the Chinese government turns off the spigot of customers, which it certainly is capable of doing.
  • A global downturn will affect conspicuous casino consumption much more than it would a corn producer.  With all the craziness going on in Europe and the United States, this is certainly not out of the question.  Casino stocks would see much more of a negative effect on share prices than others.
  • U.S. housing prices- MGM CEO Jim Murren has stated that housing prices are directly correlated to consumers' willingness to spend in Las Vegas.  If the massive numbers of foreclosures held by the banks were to be released at once, housing prices could see a rapid decline.
  • If the Democrats raise taxes on dividends, income investors might sell their shares driving the stock down.
  • Further expansion of gambling in Asia.  Japan is considering its own casino resorts, which might drive traffic away from Macau, and Las Vegas Sand's (NYSE: LVS) Marina Bay casino in Singapore, is doing amazingly well, and already taking small amount of traffic from Macao based casinos.

Bottom Line

Of all the casino companies Wynn Resorts is the one I would most like to own.  Steve Wynn's impeccable resume of accomplishment gives me great faith in management, and anytime I have visited one of Wynn's casinos in Las Vegas, whether it be the ones he built with Mirage Resorts, or Wynn Resorts, I have been very impressed. 

Aside of the semi high PE ratio, the numbers are there, in the balance sheet is relatively strong (though debt laden) Thoughts? Leave a comment below.


margiecfl has no positions in the stocks mentioned above. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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