Does Wynn's Vegas Outlook Make Sense?

In a report published Wednesday, Morgan Stanley analysts maintained an Equal-Weight rating on Wynn Resorts, Limited WYNN, while reducing the price target from $143 to $130. Wynn reported its 1Q15 results short of consensus expectations, while announcing a surprising cut in its recurring dividend from $1.50 per quarter to $0.50. The company's Macau property-level EBITDA of $212m was short of Morgan Stanley's estimate due to higher promotions and lower non-gaming revenues. Wynn's Vegas property-level EBITDA of $111 million also missed the estimate. Commenting on the dividend cut, the analysts said, "We view WYNN's viewpoint that it's not worth "paying out borrowed money" as valid and given the sharp drop in Macau revenue and lack of visibility, likely the right decision." Wynn issued a tepid outlook on the Las Vegas market and guided to a weak 2Q in the wake of weak international demand and tepid US macro environment. "While Wynn mgmt clearly has greater visibility than we do, with the ability to leverage both their casino hosts as well as their reservation systems, ~85% of room nights in Vegas are still booked <60 days in advance and gaming revenue is booked 0 days in advance," the analysts pointed out. Gaming constitutes around 40-45 percent of Wynn's total Las Vegas revenue and nearly 65 percent of that comes from international customers. "This compares with only around 30% of as Vegas revenues of MGM Resorts International MGM coming from gaming and nearly 20% of that from international customers," the report mentioned. The EPS estimates for 2Q15, 3Q15 and 4Q15 have been reduced from $1.38 to $1.30, from $1.35 to $1.17 and from $1.42 to $1.18, respectively.