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Wynn Warrants A Closer Look

Posted: Nov 21, 2008 15:20 PM by Glenn Curtis

Tickers in this Article: ASH, BYD, MGM, LVS, WYNN

I’ve mentioned in the past that I have a big affection for gaming companies. Of course, I haven’t been overly bullish on the near-term prospects for casinos, particularly for U.S. operators, because of the slumping economy. Consumers' lack of willingness to spend money on travel and non-essentials is a big concern.

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That said, I think investors interested in dabbling in the gaming sector at some point would be wise to do their homework now so they are ready to pounce later.

One company that is moving higher and higher up my radar screen is Wynn Resorts (Nasdaq:WYNN).

Some Background
Wynn owns and operates two resorts. The first is Wynn Las Vegas, which as the name suggests is located in Sin City. The second is Wynn Macau, which is in China. The company went public in 2002.

But some might argue that the company's most valuable asset is Steve Wynn, its chief executive. For those who don’t follow the gaming industry, Wynn is pretty much a legend, having been associated with enormously popular casinos including Golden Nugget and Bellagio.

Unfortunately as of late, Wynn Resorts - like many of its brethren in the gaming business including MGM Mirage (NYSE:MGM), Boyd (NYSE:BYD) and Las Vegas Sands (NYSE:LVS) - has been having a tough go. The reason, as I alluded to above, is that individuals are a bit more reluctant to travel and spend money.

In its third quarter ended September 30, Wynn saw its adjusted property EBITDA at Wynn Las Vegas come in at $70.1 million, which was well below the $93.2 million it had generated in the comparable period last year. Meanwhile its Wynn Las Vegas casino revenue number came in at $143.2 million, which was just south of the $149.9 million it turned in during Q3 last year. (Read A Clear Look At EBITDA to learn more about this measurement's many benefits - and drawbacks.)

The good news, however, is that Wynn Resorts has some winning things going for it that are causing me to pay extra attention to the company.

The Latest And The Greatest
Wynn just completed an offering of 8 million shares at $43.50. The company plans to use the proceeds for general corporate purposes including debt repayment.

I view this planned offering as good news in that it should give the company some breathing room and help it weather this economic storm. Plus, raising money now (even though the market isn’t in terrific shape) is, I think, a decent idea. It's better to tap the markets now than chance that they could take a turn for the worse even further. (Learn more about stock offerings at Don't Forget To Read The Prospectus!)

The second thing that piqued my interest this past week is that the company, at the close of business on November 13, joined the S&P 500. It reportedly replaced Ashland (NYSE:ASH), which is a chemical company. I think this is good news because S&P 500 companies tend to garner a great deal of attention from the press, which could lure investors.

As institutions or individuals look for exposure to S&P 500 stocks, their attention might turn toward the company. Of course, I can’t quantify what this could mean in terms of dollars and cents for the company, but it could lead to increased demand for the shares and increased trading volumes. (Read about how indexes work at The ABCs Of Stock Indexes.)

Bottom Line
Wynn isn’t out of the woods in Vegas. In fact, I expect domestic operators to continue to struggle in the near term. However, it could receive increased attention from joining the S&P 500, and its plan to raise money is a smart move as well.

By Glenn Curtis

Glenn Curtis started his career in the 1990s as an equity analyst for a regional firm in New Jersey. There, he covered companies in the technology, entertainment, and gaming industries. Curtis has since worked as a financial writer at a series of both web and print publications, including TheStreet.com and Registered Rep Magazine. He has held his series 6,7,24, and 63 securities licenses.

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