J.P. Morgan Slashes Wynn Target, But Still Likes Macau

In a recent report, analysts at J.P. Morgan updated their outlook for Wynn Resorts International WYNN. While analysts lowered their Q1 earnings estimates and reduced their price target on Wynn’s stock, they maintain their Overweight rating and remain bullish on Macau long-term.

Stabilization

Analysts see the potential for Macau stabilization in upcoming months. In addition, they like Wynn’s “relatively safe” $6 dividend, its diversification outside of Macau and the increasingly-favorable year-over-year comps coming for the rest of 2015. In addition, analysts believe that there is “limited investor appreciation” of recent outperformance in the mass segment, as investors seem to be disproportionately concerned with VIP numbers.

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Finally, analysts believe that table game allocation expectations for Wynn of about 150 are “reasonably low” and that any number at or above 150 could provide a boost to the stock.

Overall Macau Gaming Market

Analysts see continuing volatility for all of the names in the Macau gaming business, including Melco Crown Entertainment Ltd MPEL, Las Vegas Sands Corp LVS and MGM Resorts International MGM. Analysts believe that, until the dust completely settles on what the new, stable Macau gaming environment will look like, investors will continue to approach these stocks with caution.

However, they also feel that “the current share price risk rewards are tilting slightly more favorably for longer-term focused investors.” Of all the Macau names, J.P. Morgan’s top pick is MGM.

The Numbers

J.P. Morgan reduced its target for Wynn’s stock from $171 to $147 based on a sum-of-the-parts valuation approach. Analysts are assuming a 12.5X multiple on estimated 2016 Las Vegas EBITDA and a 13.0X multiple on estimated 2016 Macau EBITDA.

Disclosure: the author owns shares of Melco Crown Entertainment.