It has been about 18 months since Steve Wynn purchased more than 1 million shares of his own company’s stock, Wynn Resorts (WYNN), at prices in the low to mid 60’s. While he had better timing than I did (I initially started buying earlier in 2015 at higher prices), which would be expected, his insider purchase has been immensely profitable.
WYNN shares surged this week after the company reported strong earnings, breaking through the $125 level for the first time in more than two years. Bargains hunters like me who bought at multiple times on the way down have had to be patient, but buying great companies at discounted prices often works out very well for those who are willing to wait.
Now that Wynn’s second Macau resort has opened (last August) and is ramping up nicely, I thought it was a good time to revisit the investment. My thesis since 2015 has been that with the addition of two more resorts (the aforementioned Wynn Palace and the forthcoming Wynn Boston, set to open in mid 2019), WYNN’s free cash flow would move materially higher and justify a stock price of at least $150 per share (a relatively conservative 15x multiple on $1 billion of annual free cash flow).
Wynn’s recent results do nothing to shake my confidence in that investment thesis. In fact, it may very well turn out to be too conservative. Based on recent numbers for the company’s Macau properties, it is entirely possible that WYNN could be looking at reaching that cash flow goal before their Boston property opens.
Considering that the company could reasonably expect a 10-15% return on both its $2.4 billion investment in Boston, as well as the recently announced Las Vegas expansion (a golf course that earns $3 million of profit per year is being replaced by a $500 million development project that could earn $50-$75M per year), there appears to be nice upside potential to my price objective. For instance, an incremental $350 million of EBITDA at a 12x multiple would equate to $4.2 billion of added value, compared with estimated construction costs of just $2.9 billion. Tacking on $1.3 billion to Wynn’s valuation would equate to roughly $13 per share, making a stock price of over $160 distinctly possible by 2019.
As an investment manager position sizing is always a consideration, but that aside, I remain intrigued by Wynn stock even after its recent rise. As they say at the tables, I am likely going to “let it ride” for quite a while longer.
Full Disclosure: Long shares of Wynn Resorts at the time of writing, but positions may change at any time.