A Red Flag Emerges In Wynn Resorts

Jan.12.12 | About: Wynn Resorts, (WYNN)

Just today, Bloomberg is reporting that its own Vice-Chairman, Kazuo Okada, is suing Wynn Resorts (NASDAQ:WYNN) for access to the company’s books. Okada is also Chairman of Universal Entertainment, a Japanese-quoted stock that’s Wynn Resorts’ largest shareholder, with a 20% stake.

This type of development cannot be underestimated, it’s a clear red flag, a cockroach if you may, meaning that similar negative stories can emerge in the near future (a cockroach is never alone).

The issue stems from a $129 million pledge Wynn made to the University of Macau Development Foundation, as well as the use of $30 million invested by one of Okada’s companies in Wynn, back in 2002. The values in question are themselves small, but it is worrisome that Wynn Resorts doesn’t even acknowledge the $30 million investment, and is asking for proof that it really existed at all.

Wynn Resorts Ltd. presently has a market capitalization of $14.0 billion, and is trading at a TTM P/E of 26.14 with expected earnings growth of 13.40% taking it to a forward P/E of 18.62 next year. The TTM P/E means WYNN trades at a premium to the S&P500 TTM P/E of 13.0. The PEG (Price/Earnings Growth) stands at 0.69, a level which is usually seen as attractive. The Price/Book is 5.43.

WYNN's dividend yield is 1.79%. The ROE is high at 19.01% but this is partly due to very low book value since the stock is trading at a Price/Book of 5.43.

WYNN is up by 1.27% year-to-date. All in all, we can’t say WYNN is an expensive equity, its founder is a legend in the casino business and it was rather amazing what he accomplished in so little time by building WYNN from the ground up in a few short years. Still, this kind of lawsuit is worrisome and should not be taken lightly, as it might uncover signs of wrongdoing.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.