Here’s Why This Casino Stock Is Soaring Today

January 27, 2017, 8:16 PM UTC
General Economy Ahead Of GDP Figures
People stand in front of Wynn Resorts Ltd.'s Wynn Palace casino resort at night in Macau, China, on Sunday, Aug. 28, 2016. Macau is scheduled to release gross domestic product (GDP) figures on Aug. 30. Photographer: Anthony Kwan/Bloomberg via Getty Images
Anthony Kwan—Bloomberg via Getty Images

Shares of Wynn Resorts have surged since the company released its quarterly earnings report after the market closed on Thursday, jumping more than 8% to above $103 in midday trading on Friday. The reason for the exuberance: Growing signs that Wynn’s potentially risky gamble on a new casino in Asia is paying off.

Investors have been spurred on by Wynn’s $1.3 billion in revenue, which beat analysts’ expectations. A large chunk of that revenue came from its new Wynn Palace in Macau, a semi-autonomous region of China. The $4 billion casino and resort opened just a few weeks before the most recent quarter began, and initially got off to a slow start, sending the company’s stock down 14% to a low of $85 in early November. But business soon began picking up, with the facility bringing in $418.7 million in revenue for the quarter. The Wynn Palace now brings in $1.6 million in operating income a day, according to CEO Steve Wynn.

The jump in stock price continues a hot streak for shareholders of Wynn Resorts (WYNN). The stock rose 25% in 2016, and is up nearly 20% this year. The momentum carried over Thursday and Friday despite weak earnings figures, which came in at only $0.50 a share, significantly lower than the $0.85 that was expected, according to Thomson Reuters.

While business at the Wynn Palace has been good, with the company reporting a 90% occupancy rate, the news out of China isn’t all rosy. Revenue from Wynn’s regional flagship property, the Wynn Macau, was down more than 10%, stoking fears that the Wynn Palace may be cannibalizing the company’s business in the area. Still, everything’s relative: Months ago, Wynn said that a 20% to 25% cannibalization rate was possible, so the most recent numbers offered investors some relief.

Though there are no immediate plans for a new resort in China, the company has said given the economic prosperity many people are starting to attain there, it will be building more there in future. Fears that a Chinese crackdown on corruption might hurt casinos in Asia depressed Wynn’s stock in 2015, but those fears seem to have dissipated.

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