Gaming concern Wynn Resorts, Limited (NASDAQ:WYNN) is to report quarterly earnings after the close of trading on Tuesday. The company is facing severe headwinds due to the sluggish global economy, but the major hit to revenue during the past year has been an increase in regulations in Chinese gambling hotbed, Macau.
As a result, Wall Street has lowered its expectations heading into tomorrow’s report, a development that could benefit WYNN stock investors.
Digging into the numbers, the analyst community is expecting Wynn’s fourth-quarter earnings to fall 36% year-over-year to $1.44 per share. Revenue is seen declining by nearly 20% on the quarter.
However, not all within the analyst community have given up hope. For instance, EarningsWhisper.com reports that Wynn’s fourth-quarter whisper number comes in at $1.45 per share – a penny higher than the consensus.
Turning to the sentiment picture, the brokerage community remains long-term bullish on WYNN stock. Data from Thomson/First Call reveals that analysts have doled out 12 “buy” ratings on WYNN, compared to eight “holds” and no “sells.” Additionally, the 12-month consensus price target for WYNN stock rests at $179, a healthy 20% premium to the stock’s close at $147.95 on Friday.
On the other hand, short sellers are betting that there is still some downside left for WYNN stock. As of the most recent reporting period, about 4.9 million shares of WYNN stock were sold short, accounting for roughly 6% of the equity’s total float, or shares available for public trading. While not an overwhelming amount of short interest, it could be enough to spark a minor covering rally for WYNN in the event of better-than-expected earnings.
That said, options data indicates that these short sellers may be hedging their bets over the short term. The February/March put/call open interest ratio for WYNN stock currently comes in at 1.06 — a reading that rests in the lower third of all such readings taken in the past year. Furthermore, the weekly Feb 6 series put/call open interest ratio arrives at 0.52, with calls nearly doubling puts among options set to expire at the end of this week.
In other words, either options traders are betting heavily on a short-term bounce for WYNN stock, or short sellers are engaged in notable hedging activity.
Click to Enlarge Overall, weekly Feb 6 implieds are pricing in a potential post-earnings move of about 4.6% for WYNN stock. This places the upper bound at $154.77 — below resistance at $155 and WYNN’s 50-day moving average — and the lower bound at $141.23, just above long-term support at $140.
2 Trades for WYNN Stock
Call Spread: For those willing to side with the analysts and options bulls ahead of Wynn’s quarterly report, a Mar $145/$155 bull call spread has a good shot at hitting a double. At the close of trading on Friday, this spread was offered at $3.28, or $328 per pair of contracts. Breakeven lies at $148.28 while a maximum profit of $6.72, or $672 per pair of contracts, is possible if WYNN closes at or above $155 when March options expire.
Traders should note that returns on this trade can double (at $151.56) before maxing out, so set your targets and limit orders to lock in profits ahead of time.
Put Sell: If the thought of an all-out bullish play on WYNN worries you, but you believe the stock will either slip slightly or remain flat, then you might want to consider a weekly Feb 6 series $130 put sell. After the close on Friday, the Feb. $130 put was bid at 45 cents, or $45 per contract. As usual, you keep this premium as long as WYNN stock closes above $130 when Feb 6 series options expire at the end of the week. On the downside, you could be assigned 100 shares for each Feb $130 put sold at a cost of $130 per share if WYNN trades below $130 prior to expiration.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
