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Zack’s Bear of the Day: Wynn Resorts

Wynn Resorts (NASDAQ:WYNN) recently reported Q4 revenue and earnings well below expectations, due in large part to weakness in China. Analysts revised their estimates significantly lower for both 2015 and 2016 after the report, sending the stock to a Zacks Rank #5 (Strong Sell).

While shares of Wynn Resorts are trading well off of their highs, it still doesn’t look like a value at more than 20x forward earnings.

Wynn Resorts owns and operates a casino hotel resort property in Las Vegas and owns 72.2% of Wynn Macau, which operates a casino hotel resort property in the Macau Special Administrative Region of the People’s Republic of China.

Fourth Quarter Results

Wynn Resorts reported weak fourth quarter results on February 3. Adjusted earnings per share came in at $1.20, missing the Zacks Consensus Estimate of $1.44. It was a 47% decrease from the same quarter last year.

Net revenues plunged 25% year-over-year to $1,138 million, which was below the consensus of $1.238 billion. This was due in large part to a 32% decline in net revenues from its Macau Operations, which accounted for approximately two-thirds of total net revenues in the quarter. Net revenues from its Las Vegas Operations decreased 6%.

The company announced a $1.50 per share dividend for the quarter, which was more than adjusted earnings in Q4. Net interest expense was $74.6 million in the quarter. The company’s interest coverage ratio (operating income / net interest expense) was 2.1x in Q4.

Estimates Falling

Following disappointing Q4 results, analysts revised their estimates significantly lower for both 2015 and 2016. This sent the stock to a Zacks Rank #5 (Strong Sell).

The Zacks Consensus Estimate for 2015 is now $6.65, down from $7.42 before the report and down from $8.31 ninety days ago. The 2016 consensus is currently $7.90, down from $10.25 and $11.03 over the same periods, respectively.

Valuation & Balance Sheet

Shares of Wynn Resorts are well off their 52-week high, but it doesn’t look like a value here. The stock trades at 22x 12-month forward earnings and 18x enterprise value to cash flow. Its free cash flow yield is just 3.2%.

As of September 30, 2014, Wynn sported a debt to equity ratio of 25. And it appears that the company is paying its generous dividends primarily through the issuance of debt rather than cash flow. Through the first nine months of 2014, Wynn generated $267 million in free cash flow but paid out $690 million in dividends.

The Bottom Line

With falling revenues, profits and earnings estimates, as well as lofty valuation, Wynn Resorts doesn’t offer much to like in the near term.

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