Summary
- Wynn’s latest development, Encore Harbor Boston, will fully ramp in 3 years and should increase (adjusted) EBITDA by at least $225M by 2021.
- Various tailwinds will propel this further, especially the opportunity to further acquire and develop more area nearby.
- Macau is expected to continue returning excess cash in the form of dividends till 2021 when the development of Crystal Pavillion starts.
- Las Vegas is expected to keep generating stable returns, with some additional opportunity to acquire market share, and Japan is emerging as the latest expansion destination.
- Significant upside exists in WYNN stock due to its relative undervaluation, potential upside from the Boston development, and the income stream from Macau.
Currently, Wynn’s (WYNN) future trajectory is dependent on a couple of planned developments in Boston and Macau, along with the macro-economic factors surrounding China.
The company’s three locations: Las Vegas, Boston, and Macau, have advantages in terms of tourism, disposable income, and infrastructure which provide a strong base for future growth.
There could be additional upside from the Boston development project with more area available for development and monetization near the existing Encore Boston Harbor (EBH) project.
Furthermore, most of the capex requirement in Boston is expected to be fulfilled by 2019 (excluding any new developments yet to be announced), and Crystal Pavillion in Macau is not expected to need any capex till 2021. This presents Wynn the opportunity to return excess cash to investors in 2019-2021, which will be a significant positive for the stock.
There are risks in terms of the US-China trade war, a global recession and institutional/anchor investors moving away from “sin” industries such as casinos, tobacco, alcohol, etc., but I believe the probability of these playing out in near to medium future is low.
Wynn's Encore Boston Harbor Project
Wynn’s latest development in North America, EBH, is already open and locals are visiting it, especially in the evenings.
Source: Pg 15 of Wynn Investor Presentation
The company plans to market EBH internationally to foreign customers, especially the Chinese. Boston is a prime area for creating an integrated resort for international tourists because of the availability of direct international flights which should allow the location to benefit from growing tourism.
Management has estimated that the property will reach full ramp in another three years and expects 2021 revenue of $900-1100M with adjusted EBITDA of $225-325M. In its FY2021 FCF projections, management has assumed an EBITDA contribution of $255M from EBH, and an FCF yield of 11-12% (at July 2019 ending share price range).
