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The purpose of this article is to evaluate Wynn Resorts, Limited (NASDAQ:WYNN) as an investment option at its current market price. The company owns and operates Wynn Las Vegas, Encore Boston Harbor, Wynn Macau, and Wynn Palace in Cotai and is a designer, developer, and operator of integrated resorts featuring luxury hotel rooms, high-end retail space, an array of dining and entertainment options, meeting and convention facilities, and gaming".

I used to own Wynn and have covered it for a long time. Earlier this year I took another look at the stock and ultimately decided better opportunities existed elsewhere. In hindsight, I was spot-on with this call, although the truth is I should have probably been even more bearish than I was!

As we begin the second half of the year, I figured it was time to take another look at Wynn to see if a better value proposition has emerged. While I am tempted to buy-in now given the 15% decline, I simply don't love the macro-story around the traditional gaming sector. This isn't where I feel my cash is best utilized at the moment so I will be keeping the "hold" rating in place. I will explain the reasons why in greater detail below.

One of my primary reasons for softening my outlook on Wynn in particular (as opposed to the entire gaming sector) has to do with their lacking presence in the online sports betting world. In my March review, I discussed how Wynn was exiting the sports betting (and online casino business) in a number of jurisdictions and would be keeping its sportsbook open in just a handful of states. This was a costly experiment into the world of online betting and proved a general failure at Wynn, while other companies (i.e. DraftKings (DKNG) and FanDuel (owned by parent company Flutter (FLUT)) have been thriving.

I don't want to rehash the entire argument again in this article, but it will suffice to say that nothing has changed for Wynn in this regard to make me more optimistic about the stock. In fact, Wynn has continued to cease mobile operations in all but New York and Michigan as of time of writing:

This isn't a backdrop I love because investors in general don't want to see consolidation - they want to see growth. Beyond that, New York has an extremely high tax rate relative to other states when it comes to the betting platforms, taking in a whooping 51% state tax (well above other jurisdictions).

In addition, online gaming is simply where the current - and future - growth is. While resort style properties in Las Vegas, Macao, and other global destinations will continue to play an important role in the entertainment industry, they are becoming expensive to operate and are more awash with competition than ever. By contrast, digital gaming has been growing by leaps and bounds and is forecast to continue growing at a much healthier clip than in-person gaming at destinations such as Vegas:

The reality is that Wynn is not in a position to capitalize on this trend as it has already shuttered online operations in most of the states it launched and has even inked plans to offload its licenses in the only two states it is still active in - New York and Michigan - according to recent reports.

The bottom-line for me is that when I look at the gaming sector I want exposure to the online/digital trend that is sweeping the country. Wynn's experience in this arena was a flop and I imagine they won't be returning any time soon. This at a minimum keeps the stock off my "buy" list for now.

Another reason I am not upgrading here has to do with what Wynn hasn't done. What I mean by that is the company has kept the dividend constant again per its latest earnings report:

There just isn't a lot to get excited about here. Annualized this is $1/share and at the current price per share of $87 for one Wynn stock, that puts the yield around 1.1%. So the yield is low, and it hasn't been growing. That doesn't give me a lot of confidence and it certainly doesn't justify this as any type of income or dividend play. While that isn't necessarily why one would buy Wynn, it is still an attribute to consider. And the water is lukewarm in this regard.

Of course, the story surrounding Wynn is not all doom and gloom. There are bright spots to consider. Given the stock's poor performance of late, any positive element is worth mentioning because - in my view - it won't take a ton of good news to push this stock higher. Investors seem to have baked in a lot of downside and there are reasons why this may not be wholly justified. A 15% drop during a bull market does raise the eyebrows of a contrarian investor, so it is worth exploring what the counter-argument (the buy case) might be.

For Wynn the buy case has to center around Macau. This has been the growth story of traditional Vegas-based casinos like Wynn, MGM (MGM), Las Vegas Sands (LVS), and others for years now. There have been plenty of ups and downs along the way but the basic premise that the far East is going to drive gaming growth in the years to come remains intact today just like it was a decade ago.

We don't have to look much further than Wynn's Q1 earnings report to see the truth to this story. While numbers at the company's Vegas properties saw modest growth and Wynn Encore in Boston was just about flat with respect to operating revenue and income growth, Macau properties paint a much prettier picture.

In short, Wynn saw the highest share of revenues from its properties in Macau, which are the Wynn Palace and Wynn Macau. These are both high-end properties and drove impressive revenue and operating income growth for the company, as illustrated below:

As you can see, the Macau properties saw impressive growth across the primary three segments (casino, rooms, and food/beverage). Entertainment and retail were down, but the gains across the other segments were more than enough to offset it. The net result was strong revenue growth which impacted the balance sheet in a very positive way.

I don't think there is any denying that Macau is - and will continue to be - an important part of Wynn's strategy going forward. The company has clearly make great strides in that market and the strength of the most recent earnings figures will prevent me from going "bearish" on this stock. Positive news from this jurisdiction has the ability to really move the Macau gaming sector stocks, Wynn included, and I wouldn't want to actively bet against those names and take big losses if the market turns.

Expanding on the prior paragraph, it is important to note that while Macau is often cited as a bull factor for stocks like Wynn, it isn't all bells and whistles. I have my concerns as well, which is why I am not buying this recent strength. As noted already, growth in other corners of Wynn's market share haven't been as impressive and when we invest in a company we don't get the privilege of only having exposure to the areas that are out-performing. Further, given the company's large exit from online gaming/betting, it is more reliant on Macau than before. This makes the stock a more concentrated - and therefore risky - play in my view.

This matters because investing in Macau means readers need to keep a keen eye on what is going on in China. This is where a majority of the Macau gamblers originate from and economic weakness on the mainland has a profound impact on the island of Macau through lower travel numbers and overall spend when visitors do go there. And China is a more cyclical economy than more developed players like the US and the broader "West". For example, Wynn and other casino stocks took a hit recently because June figures came up short - with headlines such as the following causing some jitters:

What I am driving at here is that the Macau gaming sector, and Wynn by extension, is prone to big moves based on headlines and projections on what is a more volatile corner of the world. This doesn't make the stock "bad" nor am I suggesting to avoid it at all costs. But it does expose my followers to bigger swings and more volatility than the traditional S&P 500 company. This is something to keep in mind when evaluating whether Wynn is truly a good fit for your portfolio.

Betting on Wynn this year has not been a bet that has worked out. While the US equity market has been in a bull market, Wynn in isolation has been a stark under-performer:

There are legitimate reasons for this. Wynn's entry into online betting proved to be a flop and the company's heavy reliance on the island of Macau has made the stock prone to bigger swings. Further, investors have become content to ride the major indices (S&P 500 and the NASDAQ 100) higher because those indices are dominated by the Mag 7 and those companies have been surging higher on the backdrop of strong earnings growth:

What this shows investors have flocked to quality and I don't see a short-term catalyst that is going to change this sentiment. A riskier play on a stock like Wynn has not worked out in the first half of 2024 and I don't see a great environment for it to reverse course in the second half of 2024.

But I do see the merit for a contrarian to jump in here. Wynn's sharp drop could look like a buying opportunity - especially if one thinks the S&P 500's valuation is getting stretched. If one is a believer in the long-term story of Macau, then perhaps this is a reasonable time to place a wager on the company.

This push-pull dynamic ultimately leads me to keep the "hold" rating on the stock. Wynn has some potential value here but the broader weakness of the stock and the headwinds of lower foot traffic in Macau, where the company is heavily reliant, give me pause. Therefore, I would suggest to my followers that they proceed with caution and enter positions very selectively at this time.