Long-established in the Travel & Leisure industry, Wynn Resorts Ltd (WYNN, Financial) has enjoyed a stellar reputation. However, it has recently witnessed a decline of 4.14%, juxtaposed with a three-month change of -2.87%. Fresh insights from the GuruFocus Score Rating hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Wynn Resorts Ltd.
Decoding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- 1. Financial strength rank: 3/10
- 2. Profitability rank: 6/10
- 3. Growth rank: 1/10
- 4. GF Value rank: 9/10
- 5. Momentum rank: 9/10
Based on the above method, GuruFocus assigned Wynn Resorts Ltd the GF Score of 68 out of 100, which signals poor future outperformance potential.
Understanding Wynn Resorts Ltd's Business
Wynn Resorts operates luxury casinos and resorts. The company was founded in 2002 by Steve Wynn, the former CEO. The company operates four megaresorts: Wynn Macau and Encore in Macau and Wynn Las Vegas and Encore in Las Vegas. Cotai Palace opened in August 2016 in Macau, and Encore Boston Harbor in Massachusetts opened June 2019. We expect the company to begin construction on a new building next to its existing Wynn Palace resort in 2024, which we forecast to open around 2027. The company also operates Wynn Interactive, a digital sports betting and iGaming platform. The company received 76% and 24% of its 2019 prepandemic EBITDA from Macau and Las Vegas, respectively.
Financial Strength Breakdown
Wynn Resorts Ltd's financial strength indicators present some concerning insights about the company's balance sheet health. Wynn Resorts Ltd has an interest coverage ratio of 0.48, which positions it worse than 92.07% of 555 companies in the Travel & Leisure industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. It's worth noting that the esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five.
The company's Altman Z-Scoreis just 0.96, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.29 indicates a struggle in handling existing debt levels. Furthermore, the company's debt-to-Ebitda ratio is 10.53, which is above Joel Tillinghast's warning level of 4 and is worse than 83.28% of 580 companies in the Travel & Leisure industry. Tillinghast said in his book “Big Money Think's Small: Biases, Blind Spots, and Smarter Investing” that a high debt-to-Ebitda ratio can be a red flag unless tangible assets cover the debt.
Growth Prospects
A lack of significant growth is another area where Wynn Resorts Ltd seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by -18.8 per year over the past three years, which underperforms worse than 78.56% of 765 companies in the Travel & Leisure industry. Stagnating revenues may pose concerns in a fast-evolving market. Lastly, Wynn Resorts Ltd predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Conclusion
Given the company's financial strength, profitability, and growth metrics, the GuruFocus Score Rating highlights the firm's unparalleled position for potential underperformance. While Wynn Resorts Ltd has a rich history and a strong brand, its current financial health and growth prospects may not be as robust as they once were. As value investors, it's crucial to consider these factors when making investment decisions. Will Wynn Resorts Ltd be able to overcome these challenges and return to its former glory? Only time will tell.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
