Rob Black's Media Stock Report

Includes: WYNN, YUM
by: Rob Black

Analysts see several catalysts that should move shares of Wynn Resorts (NASDAQ:WYNN) higher over the coming months:

    1. a strong New Year's Eve in Las Vegas (based on our channel checks, initial volume indicators are very positive
    2. a strong Chinese New Year's Eve is likely (1Q07)
    3. another Macau-centric gaming operator's pending IPO in December, which could make Wynn's valuation to growth proposition more attractive
    4. a good 4th quarter 2006 out of Macau (recall management indicated on its 3rd quarter earnings call that Wynn Macau generated ~$20MM in EBITDA in October; checks indicate continued solid momentum, so upside to EBITDA is possible)
    5. the February 2007 opening of Spamalot, which should lift entertainment and casino revenues at its LV property.

Yum's (NYSE:YUM) analyst meeting last week focused on global growth and free cash flow as drivers of value, two themes that underlie our Outperform rating on the shares. But there was also disturbing news last week on E. coli food incidents linked to Taco Bell in the Northeast.

Yum's growth is driven by its international business but its domestic brands still contribute about 50% of projected earnings with Taco Bell accounting for half of domestic earnings or about 25% of total projected Yum earnings. Analysts don’t know how badly Taco Bell's sales may be affected by this issue which appears to have been caused by tainted green onions.

In the analysis below, analysts discuss Jack in the Box's 1993 E. coli problems to look at a "worst case" scenario and examine what could be key differences between that incident and this one. In 1993, the Jack in the Box incident affected many more people (unless the Taco Bell count grows significantly) – about 600 versus the roughly 300 confirmed or suspected cases this time. Assuming a fairly significant 20% decline in sales for the last four weeks of the 4th quarter, you can calculate EPS impact of about $0.04. Thus analysts are making no change to 2007 estimates, assuming this will be a transitory issue.