A Big Wynn in Macau by Leslie P. Norton
Highlighted companies: Wynn Resorts Ltd. (NASDAQ:WYNN), Harrah's Entertainment Inc. (HET), MGM Mirage (NYSE:MGM), Las Vegas Sands Corp. (NYSE:LVS), J.M. Smucker Company (NYSE:SJM)
Summary: Macau is the nation's hottest gaming-growth area, and Wynn Resorts has captured 12% of that market with its Wynn Macau, causing CEO Steve Wynn to boast, "Macau is directly in the path of a huge avalanche of revenue." Shares are currently up 50% on the year at $82.75. With a market cap of $7.9b and $1.3b cash, it trades at 37x trailing cash flow; rivals Harrah's Entertainment Inc. and MGM Mirage trade around 10x, while Las Vegas Sands Corp. sells for 43x. With WYNN opening Encore in Las Vegas next year and adding "high-revenue tables," some investors are betting that revenues will grow fast: Dan Chung of Fred Alger Management forecasts $1.4b this year (up from $722m) and $2.3b in '07. Other big betters: T. Rowe Price, Baron Capital Management, Marsico Capital Management, Fidelity Investments and Japan's Aruze Corp. (led by Kazuo Okada) own 62% collectively. On the agenda: Opening the Encore, developing its remaining 52 prized 'strip' acres in Macau (big enough for 2 resorts), 140 undeveloped acres on the Vegas strip, and what to do with all that cash. Coming soon: Three competitors are opening in Macau within the year, but investors seem unconcerned: Deutsche Bank's Bill Lerner sees $92/share, and Joe Fath of T. Rowe calls for $140 over the next five years. Barron's: The stock could shoot well past $100 a share.
Quick comment: Commentary: Wynn Stacks the Deck Against His Dealers • Valuing the Casino Industry: Are There More Harrah's Out There? • Barron's Tips for a Prosperous Retirement • Stepping Up to the Gaming Table • WSJ on Gambling in Macau • Investment Theme: Make Money off China's New Vegas, Macau • Jim Cramer's Take on WYNN