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Wynn Resorts 'Worth Risk' of Macau Restrictions, Morgan Stanley Says

Wynn Resorts faces regulatory uncertainty in Macau, but Morgan Stanley says the casino operator is still 'worth the risk.'
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Wynn Resorts shares fell in a slumping broad market after a Morgan Stanley analyst cut his price target on the casino operator to $113 from $138 due to regulatory concern in Macau.

Shares of the Las Vegas company at last check were down nearly 3.3% to $80.45.

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Morgan Stanley analyst Thomas Allen, who affirmed his overweight rating on the stock, said in a research note that "with Covid clusters continuing to pop up in China, we delay our expected meaningful Macau recovery from fourth-quarter 2021 to mid-2022.

"[That's] a point at which we hope severe Covid restrictions will be a thing of the past."

"We reflect Macau mass revenue getting back to 2019 levels in 2023, but VIP revenue still 45% below," he said. 

"The VIP weakness is largely offset by cost savings as zero-based budgeting during Covid has led to more streamlined cost structures."

Allen added that he was also lowering his valuation multiples to historical trough levels "to reflect uncertainty around future regulations, and a bear case of no Macau."

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"The Macau government announced last week that it planned to hold a public consultation on changes to Macau's gaming laws, with a number of proposals that would increase regulations on the industry," Allen said. 

While the public consultation and additional regulations have been discussed for some time, Allen said, he suspects "that some of the proposals have the risk of being more onerous than expected."

However, the analyst said he still sees Wynn as "worth the risk."

"Wynn benefits from incremental value from US sports betting and its excess Las Vegas land," Allen said. 

Regulatory concerns were also an issue with Jefferies analysts, who cut their price target on Wynn to $83 a share from $104 while maintaining their hold rating.

The analysts said Wynn's primary earnings could be materially hurt if Macau's government tightens restrictions around gambling licenses. 

On Thursday JPMorgan analyst Joseph Greff lowered his ratings on Wynn and other casino operators on news that China’s government will more tightly regulate the Macau casino business.

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