Wynn Resorts (WYNN) Will be 'Cash Flow Machine', Says Morgan Stanley; Analyst Upgrades Stock to 'Overweight' With Price Target of $120

(Updated - March 22, 2016 10:16 AM EDT)

Morgan Stanley upgraded Wynn Resorts (NASDAQ: WYNN) from Equalweight to Overweight with a price target of $120. Following a visit to Macau last week, analyst Thomas Allen said the market may be turning, and he thinks momentum in WYNN can continue.

"It's hard to justify owning WYNN on '16 or even '17 valuation. However, with Macau at least stabilizing, and Wynn going from a double-digit EBITDA decliner to double-digit grower in the next 6 months, we believe stock momentum can continue given Wynn's long-term potential," said Allen. "Wynn is highly levered today (~6.5x) but will be a cash flow machine once Macau Palace and Boston open (>10% FCF yield in '19), and our new DCF valuation implies a $120 value (30% upside)."

Allen noted visitation growth would be a big boost but he also pointed out spend per visitor and market share potential.

"Our and market expectations are for WYNN's Macau market share to grow from 10% to 13-14% with the opening of the Wynn Palace. This is conservative in the context of Wynn's history. The original Wynn Las Vegas opened in April '05 and in 2 years, had garnered 9% market share, while Steve Wynn's prior luxury properties, Bellagio and The Mirage, maintained their 15% and 8% share, respectively. In addition, our and market expectations are for low to mid single digit Macau market growth for 2017 and the years following. When Wynn Macau opened at the end of 2006, it drove a 36% 2-yr CAGR in spend / visitor, while Wynn drove an 8% CAGR in Las Vegas (both the highest growth in modern history)."

Allen added, "What was important from our Macau trip last week was operators have seen some higher spending gamblers returning to the mkt, which could accelerate with the Wynn Palace opening."

For an analyst ratings summary and ratings history on Wynn Resorts click here. For more ratings news on Wynn Resorts click here.

Shares of Wynn Resorts closed at $92.74 yesterday.

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