Wynn Resorts (WYNN) has faced a few rocky months, as the company deals with litigation from former top shareholder Kazuo Okada, worries about deceleration in Macau, and questions about its upcoming Cotai development. But investors appear to be forgetting the company’s attributes, Goldman Sachs analyst Steven Kent wrote in upgrading the stock to Buy from Neutral.
“We expect, as some of the fears begin to dissipate and the strength of the same-store, market and unit growth potential is once again fully appreciated, WYNN will trade up and regain its historic premium valuation relative to peers,” Kent wrote.
Like other analysts, Kent expects big things from Wynn’s upcoming development in the Cotai section of Macau.
“From a valuation perspective, Wynn is now trading at 12.1 times 2012 EBITDA and 10.3 times 2013 EBITDA. However, that does not include the value of Wynn Cotai which should be completed by 2015. Using a range of multiples and discount rates suggest that this property alone could be worth $24 to $62 per share.
In comparison Las Vegas Sands (LVS) is trading at 13.0 times 2012 EBITDA and the other Macau gaming stocks are trading at 7 times to 10 times but they do not have nearly the same growth path or dominant position in the market.”
Kent sees Macau gaming trends to “normalize” in June, and expects the company will announce more details about its Cotai project in upcoming months, which should serve as a a catalyst for the shares. His $136 price target is a 30% premium to Wynn’s Tuesday closing price of $104.61 (the stock was at $102.04 when Kent published the note, implying 33% upside).
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