COVID-19 plagued industries throughout the world, and casinos like Wynn Resorts (WYNN) were no exception. A business that depends heavily on actual human beings walking through a physical door to spend money tends to react poorly to not being allowed to accept human beings within its walls. Sadly, that’s what just happened to Wynn Resorts.
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I’m bearish on Wynn and most other casino stocks. The upcoming recession—possibly already in progress depending on who you talk to—will not do these companies any favors regarding earnings and revenue.
The latest news for Wynn Resorts only hits the company that much harder. Starting at midnight on Monday local time and lasting until July 18th, all “non-essential businesses” in Macau are ordered to close. The order was issued by Macau’s Secretary for Administration and Justice, Andrew Cheong Weng Chun.
The news was enough to take Wynn down 6% in pre-market trading on Monday, and the losses continued into Monday’s trading session as well. The stock is currently down 7.4%.
The news hit not only Wynn but also Las Vegas Sands (LVS), which is also down over 7% on the day. Both companies have a strong presence in the Asian gambling hub.
Wynn Resorts’ stock has generally been on a downward trend in the past 12 months. Back in July 2021, the company hit a swing high of around $115. Today, it’s down to about half that at $52. Wynn has seen some attempts at recovery in the meantime, but none have held long.
Wall Street’s Take on Wynn Resorts
Turning to Wall Street, Wynn Resorts has a Moderate Buy consensus rating. That’s based on four Buys and five Holds assigned in the past three months. The average Wynn Resorts price target of $82.06 implies 56.8% upside potential.
Analyst price targets range from a low of $60 per share to a high of $112 per share.
Investor Sentiment is a Crapshoot Right Now
Right now, Wynn Resorts’ investor sentiment looks a lot like one of its table games. It’s a very red/black environment; some parts are very much on board with Wynn’s success, while others are a “00” waiting to happen.
WYNN has an 8 out of 10 Smart Score rating on TipRanks, which is the lowest level of “outperform.” That suggests it’s more likely than not that Wynn will do better than the broader market.
One part of investor sentiment clearly doubling down on Wynn is hedge funds. Hedge fund involvement increased by 304,000 shares in the previous quarter. That by itself might not mean all that much. However, given that hedge funds owned just over 58,000 shares of Wynn Resorts back in December 2021, it’s a massive percentage increase.
Meanwhile, Wynn insiders are also buying in large quantities. Granted, no transactions have been carried out since last April. However, March and April saw only Buy transactions. April saw more Buy transactions by itself than it did in the nine months preceding April. The last year saw 18 Buy transactions, and 12 of these happened in April. Meanwhile, there were 17 Sell transactions in the last year.
As for retail investors who hold portfolios on TipRanks, they’re about the only ones not interested in Wynn. The number of TipRanks portfolios holding Wynn Resorts shares was down 0.6% in the last seven days and down 1.5% in the last 30 days.
Wynn’s dividend history, meanwhile, is a trouble spot. Its dividend behaved like a perfect income investment, regularly increasing once a year to the point a three-year graph looked like a staircase. However, that staircase stopped in February 2020 and hasn’t been back since.
Wynn is Facing a Couple of Problems
Wynn Resorts, right now, is facing two separate problems at once. The first problem is the obvious one: COVID-19. Wynn will lose a week in Macau, thanks to that. The odds of that lockdown going longer are substantial. While, thankfully, the pace of lockdowns has diminished substantially over the last two years, it’s still a problem businesses have to fear.
This can be relieved somewhat by the use of online gaming operations. Several casinos have already found success with online sportsbook operations. While this doesn’t make up completely for the loss of physical casino traffic, it certainly helps.
In 2020, during the worst of COVID-19 lockdowns, the online gambling market hit $76.792 billion in value. Even if this were the entire casino market, that still wouldn’t be a bad thing. It’s a big step down, but it’d still be a fairly thriving market.
However, this runs headlong into the second major problem: a recession. With a recession afoot, or maybe even here, discretionary budgets will take a beating. They already have, thanks to surging costs at the gas pump and the grocery store.
This won’t stop the gaming market in general, thanks to a combination of well-heeled whales with money to burn in any environment and the truly desperate. There are over 10 million Americans with a gambling addiction, after all.
However, it will slow things down by taking a hefty bite out of the market’s middle, regular folks who like a little fun on a Saturday before pigging out at a buffet or seeing a live show.
This combination of factors doesn’t bode well for returns right now. However, it’s not going to bode poorly forever or probably even all that long.
The second the recession starts to look like it’s turning around, there will likely be a move back to these kinds of investments. Restraining governments from slamming the lockdown button, however, will only help here.
Concluding Views – Still Risky for Now
Right now, I’m bearish on Wynn Resorts. The unwelcoming economic environment of the next several months to come will not be kind to companies that are heavily dependent on disposable income.
However, this situation is likely temporary. A turnaround in a few months is all too likely as the economic problems relent and people feel safer spending $200 or so on a night’s entertainment.
The growing interest from hedge funds and Wynn insiders makes it clear that they expect a turnaround before too much longer.
Yet, it still looks like Wynn Resorts may have a bit farther to drop. In a while, after the “weak hands” have departed and the stock is at a lower point, that will change. It will be even better once Wynn gets its dividend back up and running. However, for right now, Wynn Resorts looks like a bet to take off the table.
