Shares of Macau concessionaires are the brightest spots in an otherwise dismal day across the gaming equity complex, and Wynn Resorts (NASDAQ:WYNN) is getting in on the act.
In late trading, shares of the Wynn Palace operator are higher by more than eight percent on volume that’s more than double the daily average. That’s after Macau’s Executive Council said Friday the amount of concessionaires operating in the world’s largest casino hub will remain at six.
License terms are being slashed to 10 years from 20 years. But there’s an option for a three-year renewal after the initial decade term. Concessionaires must also boost minimum share capital to roughly $625 million from just $25 million, and a managing director that’s a permanent Macau resident must hold 15 percent of share capital, up from 10 percent.
While stringent, those regulations are tolerable for operators, and not nearly as tight as some in the investment community expected. The news is stoking rallies in Las Vegas Sands (NYSE:LVS), Melco Resorts & Entertainment (NASDAQ:MLCO), and Wynn, while other gamine equities are tumbling today. Specific to Wynn, the stock is trading at its highest levels since late November on the back of the Macau regulatory news.
Analysts Optimistic on Wynn
While Macau concessionaires are still grappling with travel restrictions stemming from China’s zero-tolerance policy on COVID-19, Friday’s regulatory news removes an overhang on the aforementioned gaming equities and others.
Additionally, some of the worst regulatory fears weren’t realized, lending credibility to some analysts’ recently optimistic tones on Wynn. Previous speculation that Macau authorities could open the market to more competition and that license terms could be trimmed to five years proved to be rumors.
This is important as there had been the fear that the Chinese government would potentially increase the number of concessions, which would have quickly diluted existing operators,” said Stifel analyst Steven Wieczynski in a note to clients today. “In addition, it doesn’t seem like a government representative will be assigned to the Board of the existing concession holders, which was another potential negative.”
The analyst also points out that the aforementioned capital contribution of $625 million isn’t alarming, because plenty of Macau operators, including Wynn, are planning to spend much more in the gaming hub.
Wynn Shares Inexpensive
As Macau stocks stumbled through a brutal 2021, Wynn drew bearish calls, with some market participants claiming the stock is overvalued. Stifel’s Wieczynski doesn’t see it that way.
“We like the risk/reward current setup the most in Wynn Resorts at this point. After recently lowering our estimates both in the near- and long-term, WYNN is currently trading sub-10x our revised 2023 EBITDA estimate, which is in line with trough multiples,” says the analyst.
Citing a “dislocation” in Wynn’s share price relative to its valuation, it might be advisable for investors to add to positions in the name before a Macau recovery commences in earnest, adds Wieczynski.
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