Betting On A Wynn Resorts Recovery? 2 Stock Strategies Plus A Bull Call Spread
2022.04.25 16:41
- Casino resort heavyweight Wynn Resorts shares have underperformed
- COVID-19 outbreak in China may effect Macau operations
- Long-term investors could consider buying shares at current levels
Shareholders in the Nevada-based casino stock Wynn Resorts (NASDAQ:WYNN) have seen the value of their investment go down more than 41% over the past 52 weeks, and 13.9% year-to-date. By comparison, the VanEck Gaming ETF (NASDAQ:BJK) declined 16.7% in 2022 and 31.4% in the past year.
Wynn Resorts Weekly
On June 2, 2021, WYNN shares went over $136, and hit a 52-week high. Those readers who pay attention to technical charts, especially price and time cycles, may want to watch early June as a potential turning point in price.
How Recent Metrics Came In
Wynn Resorts, released Q4 2021 figures on Feb.15. Operating revenue came in at $1.05 billion, up 53.5% year-over-year. While the company’s Las Vegas and Encore Boston Harbor operations contributed positively to the top line, revenue from the Macau operations decreased from a year earlier.
Net loss attributable to Wynn Resorts was $177.2 million or $1.54 per diluted share in Q4 2021 vs. $2.53 loss per diluted share of Q4 2020. Cash and equivalents stood at $2.52 billion. Meanwhile, total current and long term debt was $11.93 billion.
Management expects to close on the sale leaseback of Encore Boston Harbor in Q4. The transaction will provide $1.7 billion in long term capital for Wynn Resorts.
On the results, CEO Craig Billings said:
“We were excited to announce our plans to develop and manage a luxury integrated resort in the UAE, along with our partners, Marjan and RAK Hospitality Holding. The project further diversifies our business, extending our brand into the Middle East and Europe.”
Prior to the release of the Q4 results, Wynn Resorts shares were trading around $95. But on Apr. 22, they finished the week at $73.20.
This decline means WYNN shares have lost roughly 23% since the earnings announcement. Finally, the stock’s 52-week range has been $66.33-$136.83, while the market capitalization (cap) currently stands at $8.5 billion.
What To Expect From WYNN Stock
Among 15 analysts polled via , WYNN stock has an “outperform” rating.
WYNN Consensus Estimates
Wall Street also has a 12-month median price target of $105.88 for the stock, implying an increase of almost 45% from current levels. The 12-month price range currently stands between $73 and $139.
However, according to a number of valuation models, like those that might consider P/S multiples or terminal values, the average fair value for WYNN stock at InvestingPro stands at $80.60.
WYNN Valuation
In other words, fundamental valuation suggests shares could only increase about 10% and that there is high uncertainty regarding future performance.
We can also look at WYNN’s financial health as determined by ranking more than 100 factors against peers in the consumer discretionary sector.
For instance, in terms of cash flow and growth it scores 2 out of 5 (the highest score). Thus, its overall standing points is a rather weak performance ranking.
We have to remember that like many travel and leisure shares, WYNN stock has suffered significantly during the pandemic. Furthermore, in recent weeks, rising Covid-19 numbers in China have increased question marks over how the rest of the year will shape up for Wynn and its peers. Now, WYNN bulls are hopping that the company will turn around and begin to create shareholder value soon.
Our expectation is for WYNN stock to build a base between $67.5 and $72.5 in the coming weeks. Afterwards, shares could potentially start a new leg up.
Adding WYNN Stock To Portfolios
Wynn Resorts bulls who are not concerned about short-term volatility could consider investing now. Their target price would be $80.60, as forecast by fundamental metrics.
Alternatively, investors could consider buying an exchange-traded fund (ETF) that has WYNN stock as a holding. Examples include:
- VanEck Gaming ETF (NASDAQ:BJK)
- iBET Sports Betting & Gaming ETF (NASDAQ:IBET)
- Invesco S&P 500® Equal Weight Consumer Discretionary ETF (NYSE:RCD)
- T Rowe Price Growth Stock ETF (NYSE:TGRW)
Finally, investors who expect WYNN stock to bounce back in the weeks ahead could consider setting up a bull call spread.
Most option strategies are not suitable for all retail investors. Therefore, the following discussion on WYNN stock is offered for educational purposes and not as an actual strategy to be followed by the average retail investor.
Bull Call Spread On WYNN Stock
Intraday Price At Time Of Writing: $73.20
In a bull call spread, a trader has a long call with a lower strike price and a short call with a higher strike price. Both legs of the trade have the same underlying stock (i.e., WYNN) and the same expiration date.
The trader wants WYNN stock to increase in price. However, both the potential profit and the potential loss levels are limited. This trade is established for a net cost (or net debit), which represents the maximum loss.
Today’s bull call spread trade involves buying the Sept. 16 expiry 75 strike call for $8.85 and selling the 80 strike call for $6.80.
Buying this call spread costs the investor around $2.05, or 205 per contract, which is also the maximum risk for this trade.
We should note that the trader could easily lose this amount if the position is held to expiry and both legs expire worthless, i.e., if the WYNN stock price at expiration is below the strike price of the long call (or $75.00 in our example).
To calculate the maximum potential gain, we can subtract the premium paid from the spread between the two strikes, and multiply the result by 100. In other words: ($5.00 – $2.05) x 100 = $295.
The trader will realize this maximum profit if the WYNN stock price is at or above the strike price of the short call (higher strike) at expiration (or $80.00 in our example).
Bottom Line
Since February 2022, WYNN stock has come under significant pressure. Yet, the decline has improved the margin of safety for buy-and-hold investors who could consider investing soon. Alternatively, experienced traders could also set up an options trade to benefit from a potential increase in the price of WYNN shares.
