Some analysts and shrewd investors see a disconnect between Wynn Resorts Ltd.'s (WYNN) - Get Report operating fundamentals and current investor sentiment and are betting the shares are a contrarian layup.
"With the stock ~$128 and down sizably from ~$200 in late May, we see considerable amount of Macau/China/trade tension/EM risks baked in the current valuation multiple of 11x current year EV/EBITDA (adjusting for construction in progress) and thus see a considerable amount of value here," Joseph Greff and a JPMorgan analyst team told investors on Monday.
Before a 4.5% recovery today following Greff's note, Wynn shares were down almost 10% this month and twice that for the year-to-date. The stock closed at $134.20, up $5.82.
Greff met with Wynn executives recently and said they seemed sanguine about prospects at their Macau operations, a constant source of investor speculation. He said they're "optimistic" about Macau and their ability to grow market share there.
In a Sept. 9 note Deutsche Bank analysts echoed Greff's sentiment and told clients that, "Despite stock action implying otherwise, we believe conditions in Macau remain stable in both the VIP & mass segments. While we recognize the overhangs of the China macro backdrop and, more importantly, the trade war, we don't believe these events have shown up in the numbers. While they could over time, we can point to many instances of similar climates, which served as superb buying opportunities. With valuation levels akin to the fall of 2015, we are buyers."
Macau accounts for more than 70% of Wynn's business but Las Vegas is on the radar too, and Greff lowered forecasts for Wynn Las Vegas last month citing, "what we think will be more normalized seasonality against difficult 3Q17 comparisons on the hotel side and more limited drivers of higher-end gaming volumes in the period."
Despite all of the concerns around Macau, "largely due to the perception of what's to come more so than actual market softness," Greff said Wynn is positioned well to beat third-quarter forecasts.
The situation at Wynn is also interesting because the company's in the middle of a management shakeup after founder Steve Wynn's ex-wife Elaine Wynn further solidified her grip on the company following her husband's departure amidst sexual harassment and related allegations.
The casino giant, which was founded as a bingo parlor decades ago by Steve Wynn's family, said on Aug. 6, it had named former Harrahs' CEO Phil Satre as vice chairman and said he would become chairman next year. Elaine Wynn has been agitating for change at the company for some time, urging the luxury resort chain to require annual director elections after it didn't agree with her management suggestions.
While the analysts were researching, one big buyer stepped in recently, with Gabriel Plotnick's Melvin Capital Management quietly accumulating a 5.13% stake in shares and options. That makes the SAC Capital alum Plotnick, who is not an activist, the company's sixth largest institutional owner.
Plotnick took the latest position in July and August when he added to his previous stake.
Melvin Capital declined to comment for this story.
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