Casinos' Share Price Drop Is Unwarranted

Includes: LVS, MGM, WYNN
by: Robert Weinstein

MGM Resorts (NYSE:MGM), Las Vegas Sands (NYSE:LVS), and Wynn Resorts' (NASDAQ:WYNN) shares traded down sharply Thursday. The combination of the overall market sell-off, combined with MGM's largest shareholder's -- Kirk Kerkorian's Tracinda Corporation -- share sales disclosure, sent shares down to a low of more than 14% off Wednesday's close. Volume was heavy with around 50 million shares traded, about double the normal daily average.

It appears today was the wrong day to announce the sale, as the reaction was what one would expect if Mr. Kerkorian was completely selling out. Nothing could be further from reality, as Tracinda remains the largest shareholder, and will remain an investor with over 22% of the company. According to Reuters, Mr. Kerkorian's investment will go from 131 million shares down to 111 million shares. Owning over 100 million shares does not strike me as losing faith in MGM. Paulson & Co. remains an investor with 8.5% of MGM shares, and I believe that's a good company to be invested with.

MGM last-quarter earnings increased net revenue 17% over the same period last year. The hotel rooms are providing greater revenue and occupancy, with the revenue per available room up 10%. Further, the Asian investments are paying off well, and can be expected to grow revenue and profit as the market expands. As Las Vegas improves, and it will, MGM investors will be able to reap the rewards of the rebound. This is the classic knee-jerk reaction that is largely much to do about nothing. I look at the current sale prices for the casinos as a buying opportunity, or a selling opportunity for put options with the increased implied volatility.

In sympathy with MGM as well as the overall market, Las Vegas Sands, a company I have been bullish on for several years, also went on sale today. Sands did manage to stay above the long-term trend line, and if the current sell-off plays out for two or three days, I will be looking to buy it again.

Wynn Resorts has had an incredible run-up in price. When others in Vegas have struggled, Steve Wynn continues to add shareholder value, as he has always done. On the monthly chart, Wynn does appear to be due for price consolidation, and remains in an uptrend. Prices below $130 really become buying opportunities (absent some material change for Wynn), in my opinion.

I like the space and the three companies. I will also likely be long at least one of the companies by the time you read this.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in LVS, MGM, or WYNN over the next 72 hours.