The Company

The News

The house decidedly won at

Wynn Resorts

After the markets closed Monday, Wynn, which is led by casino mogul Steve Wynn, reported that second-quarter revenue came in at $687.5 million, a 151% increase from the $273.4 million in revenue it reported in the year-ago quarter. The company's earnings of $89.6 million, or 82 cents a share, were made even more impressive when compared to the loss of $20.1 million, or 20 cents, reported in the year-ago quarter. Adjusted earnings for the quarter came to 92 cents a share, leaps and bounds ahead of the 53 cents that analysts expected, according to Thomson Financial.

Wynn's quarterly windfall was helped by a strong showing at the company's less-than-year-old property in Macau and at its flagship casino resort operations in Las Vegas.

The company opened its Wynn Macau property, which sports an 110,000-square-foot casino, 600 hotel rooms, seven restaurants and 26,000 square feet of retail space, last September. During the second quarter, the operations in Macau generated revenue of $352.5 million and earnings before interest taxes depreciation and amortization, or Ebitda, of $92.7 million. The hotel also boasted an impressive 86.2% occupancy rate quite a feat given that most visitors to the Chinese peninsula are day trippers. The strength of the Macau operations helped prove that the visa restrictions that the Chinese government placed on mainland residents isn't having as big of an impact on the gaming business in Macau as originally feared.

In Las Vegas, revenues both casino- and nongambling-related came in at $370.6 million with Ebitda in Las Vegas climbing 57.6% to $115.3 million. The hotels there had an almost-perfect 97% occupancy rate during the quarter. "Indeed, annualized gaming margins as well as entertainment margins are the highest in five quarters, while hotel and food and beverage margins represent record achievements for Wynn Resorts," wrote BMO Capital Markets analyst Jeffrey Logsdon Tuesday.

The Analysis

There's little doubt that Lady Luck has been on the Wynn's side in recent months, but whether she'll stay there is another question.

"Is it sustainable? It is in Las Vegas. Their property there is starting to really be a player that's going to stay there and not really leave," says Stifel Nicolaus analyst Steven Wieczynski. "But Macau is really difficult. It's hard to get your hands around."

While the Macau operation has enjoyed the luxury of being one of the newest kids on the block since last fall, that could all soon change as more competitors stake their claim on the territory in the upcoming months. The Venetian Macau, operated by rival Las Vegas Sands, will hold its grand opening on Aug. 28. Then, in December, MGM Mirage is slated to open its MGM Macau casino right next door to the Wynn property.

"Wynn might have some near-term pressure from all of the supply coming into Macau in the next year," says Wieczynski, who is maintaining his Hold rating on the stock.

But some analysts are looking beyond the risks in Macau to the company's future plans. "Our main thesis on the stock continues to be the development pipeline," wrote Jefferies & Co. analyst Lawrence Klatzkin in a Tuesday report.

Coming up on the company's calendar is the opening of the Encore Las Vegas in early 2009. As Wieczynski explains, there should be plenty of demand for the new casino resort, which will sport more than 2,000 rooms and plenty of amenities. "When you're running close to 100% occupancy at a 2,000-room hotel now," he says, referring to the Wynn Las Vegas. "Demand is clearly there for your room product."

But again, it's the Wynn's efforts in Macau that are more uncertain. Last quarter, the company submitted an application to the Chinese government for land in Cotai, a part of Macau. Those plans, which Klatzkin says include the development of three hotel sites and 52 acres in Cotai, are still waiting for approval.

"We believe it will be a major positive for the stock once the company publishes these details, at which point we will re-evaluate our target," says Klatzkin, who just upped his price target to $127 from $116.25. According to data from Thomson Financial, the median target for the shares ahead of the company's earnings release was $105, making Klatzkin decidedly bullish on the company's stock.

Wieczynski is more skeptical. "I want to take a wait-and-see approach," he says.

The Bottom Line

While analysts agree that Wynn has plenty of exciting projects in the pipeline, the uncertainties about Macau will loom until the full impact of competition there is assessed.

Even more importantly for investors though, is that Wynn's shares are now trading above even some of the most bullish price-target projections. And while there is a handful of catalysts such as the announcement of the company's plans in Cotai that could propel the company's stock further, analysts remain cautious that construction delays or problems getting government clearance could also weigh the stock down.

Given recent valuations, betting on this stock would mean relying heavily on Lady Luck.