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Wynn Earnings Don’t Tell The Whole Story

That and a visit offer a strategy to play the best name in Vegas


Steve Wynn is on my list of “5 People I’d Most Like to Spend a Day With,” because the man is a legend (and survivor) in the world of hospitality and gaming. For more than fifty years he has built hotels and resorts all over the world, and has always been able to shift with the times.

Basically, if you’re going to invest in Las Vegas, then you invest with Mr. Wynn via Wynn Resorts (NASDAQ:WYNN). Even better, you get his entire Macau operation along with it.

I stayed at Encore (the property connected to Wynn) last weekend. Its understated elegance attracts a wide demographic — from older folks on vacation to average tourists and right on down to the most beautiful 20-somethings I’ve seen congregate outside any club in my life. The staff and service are outstanding in every respect — the front desk staff printed out my boarding pass late at night, a helpful security guard offered directions and the wait staff at the coffee shop was great.

And everything is expensive, as a shareholder would hope at a 5-star property, and of the highest quality. While other properties struggle to remain relevant, Mr. Wynn is constantly changing elements of his resort, including room renovations every five years. Wynn Las Vegas doesn’t miss a beat, not for a second.

One cannot judge a hotel’s revenue stream by observing the long lines outside its trendy nightclub, which in this case was Wynn’s XS. Nor can one assume an earnings beat because the gaming tables are packed. In truth, Las Vegas continues to struggle. All you have to do is ask a cabbie, who will tell you exactly how bad things are … as he long-hauls you around the city trying to rip you off instead of trusting that you’ll tip him well for being honest.

Indeed, Wynn’s quarterly results weren’t stellar. The company missed estimates with adjusted net income of $1.38 per share and revenues of $1.25 billion against expectations of $1.50 per share and revenues of $1.33 billion. Revenue was down 8.3% but, despite that, adjusted net income was up 13%.

Non-casino revenue was essentially flat. There’s softness and increasing competition in Macau. And in a freak of statistics, baccarat gaming in April actually lost the company money for the first time that Mr. Wynn has experienced in 45 years.

And you know what? I don’t care. Here’s why:

Nobody does it better than Steve Wynn. Resorts are subject to economic stresses. So is gaming. But no matter what happens, Steve Wynn will survive and probably thrive. He’s always looking at the big picture along with the short-term issues that face his industry.

He’s a master strategist and is in touch with what his customers want. He knew not to over-leverage when he built Wynn and that’s why it isn’t crushed under debt like MGM Resorts (NYSE:MGM) is. Furthermore, over the long haul, gambling always favors the house, and in a very big way. As he stated in the conference call:

“(We have) a lot of cushion in our equity, on our balance sheet, to handle the vicissitudes of a changing market … We opened up Encore at exactly the wrong time, right … into the jaws of this economic turmoil. And although it was painful in terms of return on investment, we didn’t have any crises or any real heartburn about it. We … took very good care of our properties … and had the kind of reserves financially that it would take to protect such things.”

Wynn Resorts went public in 2002 at about $13 per share. Just prior to the financial crisis, it was over $160 per share before crashing right back to $20. Since then, it soared back up to its old highs and is now trading around $97.

I think investors can look at this stock two ways: buy it and hold. The old highs will return at some point. The question is how long that will take, and you could average down if the stock falls. The other approach is to trade the stock, scooping up bits and pieces on either the long or short side, and jumping in and out on swing trades.

Lawrence Meyers does not own shares in any stock mentioned.

Article printed from InvestorPlace Media,

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