Wynn Resorts: A Logical Shorting Candidate

As the economic climate continues to worsen, gaming companies are suffering, and their stocks are getting decimated. Yesterday, MGM’s bond prices fell, while the cost to insure those debts soared, after the company warned that if the economy continues to worsen, it may violate terms of its credit agreements.

The company also said it was in discussions with its lenders, but with the caveat that there are no guarantees those talks will prove fruitful.

With the stock of all its publicly traded competitors being traded down close to penny stock status, we are taking a look at Wynn Resorts (WYNN), which being that it is currently trading at $17.20 and has the meatiest market cap, has the potential for some nice gains on a short trade. The company’s market cap is now at least 2.25 times the size of any of its nearest competitors.

In its favor, Wynn Resorts seems to be in a “better” cash position than its competitors. The company in its last annual balance sheet, reported total cash of $1.71 billion and total debt of $4.92 as opposed to MGM Mirage for instance, which reported a cash position of just $250 million and total debt of $13.92 billion.

However, Wall Street tends to paint with broad strokes and regardless of the company’s fundamentals, the more the other gaming companies get tarnished, the increasing likelihood we will continue to see further deterioration in WYNN shares.

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Since December 31, 2008, the stock has gone from $42.26, to yesterday’s closing price of $17.20, for a 59.2% decline. That’s the type of move that would cause a trader looking to short the stock, to take pause on the fear that one might have missed all the moves.

However, we know the economy will get worse before it gets better, we know as consumer confidence continues to erode, the casinos will struggle to fill rooms, and the market has not given any indication that we are on the cusp of a sustainable rally.

As such, one can draw a plausible conclusion that we have more downside in store and if that happens, then Wynn Resorts will be dragged down as well.

Disclosure: no positions

Comments

[C. Boyer:]

While EVERYONE is suffering financially no matter the industry, I think this industry in particular with bounce back sooner than later. People love their leisure time, and VEGAS is where people flock to. It's the first get away the young the old the in between think of for a quick trip to escape the land of "reality". I think gaming is not to be overlooked all things considered!

Mar 05 11:27 AM

[C. Boyer:]

While EVERYONE is suffering financially no matter the industry, I think this industry in particular with bounce back sooner than later. People love their leisure time, and VEGAS is where people flock to. It's the first get away the young the old the in between think of for a quick trip to escape the land of "reality". I think gaming is not to be overlooked all things considered!

Mar 05 11:29 AM

[VegasCasino...:]

Im sure there is some more downside to Wynn in the next few months but not as much as you might think. I have spent a lot of time in casinos in my life including the past weekend at Wynn/Encore and while the Venetian was quite slow, Wynn was buzzing. He has lowered rates to the point where whatever people are coming to Vegas, they are coming to Wynn. Why stay at Luxor for $109 when you can get Encore for $159? The place is beautiful and you feel like a high roller just staying there. That has a strong draw in the current environment. Wynn definitely leads the sector now and when it comes out of the hole its in. And who knows? Maybe he picks up Bellagio again for pennies on the dollar.

Mar 05 04:15 PM

[oldmaninPA:]

I like WYNN and LVS as Chinese plays from their Macau operations. I know these won't turn the corner today, but I believe investing at these levels should provide nice upside in the next 12 months.

Mar 06 08:13 AM