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Wynn Resorts and Melco Resorts upgraded on Macau recovery and improving sentiment

Stock Markets Nov 28, 2022 10:58
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MLCO
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By Sam Boughedda 

JPMorgan upgraded shares of Wynn Resorts Ltd. (NASDAQ:WYNN)) and Melco Resorts & Entertainment (NASDAQ:MLCO)) to Overweight from Neutral in a note Monday.

JPMorgan analysts told investors in a broad note covering the gaming sector that fundamentals were – and have been – generally sound, "even encouraging, particularly on the Las Vegas Strip and in the LV Locals market."

The firm's reason for the upgrade is based on Macau recovering, still awful/skeptical sentiment improving, and after multi-year underperformance since the pandemic bottom, underperformance reversing, leading to sizable outperformance."

"We don't see these stocks as being well-owned and the shareholder lists for these companies today looks totally different than pre-pandemic," stated the analysts.

They see WYNN as the mid-cap way to play the recovery and MLCO as the small-cap way.

"For WYNN, our year-end 2023 price target is $91, based on a SOTP approach to 2024E EV/EBITDA, ascribing 12.0x to Macau, 11.0x to Las Vegas, and ascribing 7.0x to Encore Boston EV/EBITDAR. We deduct net debt and capitalized lease obligation associate to EBH and give credit for Wynn's Las Vegas Land parcel. We estimate that WYNN's domestic business comprises $63 of our $91 price target. At current levels, WYNN trades at 11.1x 2024E EV/EBITDA, a discount to its historical average 13.8x forward year EV/EBITDA," the analysts continued.

"For MLCO, our year-end 2023 price target is $10, based on a SOTP approach to 2024E EV/EBITDA, ascribing 12.5x to City of Dreams Macau, 12.5x to Studio City (at MLCO's 54.5% share), 8x to Altira, 10x to Mocha Clubs and Cyprus, and 10x to Manilla. We estimate that its Macau business can trade at 12x 2024E EV/EBITDA. At current levels, MLCO trades at 8.4x 2024E EV/EBITDA, which compares to its historical average 11.0x forward year EV/EBITDA."

Wynn Resorts and Melco Resorts upgraded on Macau recovery and improving sentiment
 

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