Investment Advisor Blog | Gaming Update: Wynn Set for Boston Opening and Why Penn Looks Dirt Cheap | Talkmarkets

Gaming Update: Wynn Set for Boston Opening and Why Penn Looks Dirt Cheap

Date: Friday, May 10, 2019 9:15 AM EDT

A lot has been going on with Wynn Resorts (WYNN) since my last post about six months ago so I figured it was time for an update. In addition, I recently significantly increased long holdings in regional gaming operator Penn National (PENN) and will share some brief thoughts there.

Shares of WYNN have continued in seesaw fashion, as the Massachusetts Gaming authorities held hearings to determine if it would allow the company to keep its gaming license in the state and open its Encore Boston Harbor property on schedule this summer. After a lot of tough talks, WYNN was fined $35 million for how it handled its former CEO amid inexcusable behavior but got the green light for the Boston resort, and the stock has firmed up with the uncertainty cleared up.

It will take some time before we know exactly how profitable the new property will be, but I have been sticking with my $2 billion EBITDA target for 2020 throughout my holding period, and there is no reason to think that figure will be materially off base at this point.

If we apply an EV/EBITDA multiple of between 12x and 13x on that cash flow number, fair value for WYNN shares would be in the $155-$175 range, compared with the current price in the 130’s. On a free cash flow basis, a 15-18x multiple on my $1.1 billion estimate (once Boston has stabilized), gets us to a fair value range of $154-$185 per share.

As a result, the stock is still well priced for longs, but given that it moves up and down a lot quite quickly, there could be an exit point approaching near the bottom end of that range if one can find other opportunities with even more upside.

On that front, I really like shares of Penn National Gaming and have been buying a lot more at $18 and change this week. PENN is the nation’s leading operator of regional casinos, with more than 40 properties in nearly 20 states. Competition is typically intense, as jurisdictions often grant additional licenses in order to try and maximize tax revenue, but PENN has proven to be as solid an operator as they come and does not shy away from accretive M&A deals when given the chance.

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