Trade Update WYNN: Managing Feb Call ButterFly

by Dan February 3, 2012 9:35 am • Commentary

Trade Update Feb 3rd, 2012:  Stock is down this morning about 4%, reversing yesterday’s late day gains…..Here is a quick round up from some analyst comments this morning following WYNN‘s Q4 results last night:

From Citi in a note to clients this morning, Citi has a Neutral and a $125 12 month price target:

Growth Decelerates Due to Market Share Loss in Macau

-Remain on the Sidelines — We have modestly lowered our Wynn Resort estimates for FY12-13E by 1% to reflect 4Q11 results. We maintain our Neutral rating, but increase our target price from US$118 to US$125, as we roll forward to 2013. Wynn remains the most expensive of the three large listed-US gaming names at 10.6x 2013E
EV/EBITDA and 19.4x 2013 P/E (5% and 20% above LVS).

-Soft 4Q11 Results — Aided by hold in Macau, Wynn reported adjusted 4Q EPS of US$1.55 (or we estimate ~US$1.25, normalizing for the large tax credit in the period), vs. our and consensus estimates of US$1.27 and US$1.30, respectively.

-Macau — Net Rev and Adjusted Property EBITDA from Macau improved 9% and 6% YoY to US$996m and US$313m, in line with our expectations. The deceleration in YoY earnings growth is principally attributable to lost market share to the Cotai players over the past year (4Q11 GGR market share of 13.4% vs. 15.8% in 4Q10), notwithstanding better VIP hold of 3.18% in the quarter. Management noted that it was continuing work
on the final project scope, timeline, and budget for its Cotai property.

-Las Vegas — Total Net Revenue from Wynn’s Las Vegas operations improved 7% YoY to US$348m, while adjusted property EBITDA improved 30% to US$89m (or 22% of total company EBITDA), generally inline with our forecasts.

-Okada and the Philippines — Management also discussed the recent lawsuit filed by Kazuo Okada. The disagreement is predicated upon Mr. Okada’s interest in developing a gaming presence in the Philippines Management stressed that they would not pursue gaming opportunities in the Philippines.

Morgan Stanley, similarly downbeat in a note to clients this morning, MS has a Neutral and a $130 price target:

4Q Miss, Lowering PT to  Reflect Decelerating Growth
In a likely decelerating VIP-revenue environment in  Macau in 2012, exacerbated somewhat byproperty-specific capacity constraints, we believe  upside to current Street estimates is unlikely, which
will likely keep WYNN’s shares range-bound.

What’s new: We expect WYNN shares to react negatively following a tepid 4Q, as hold-adjustedEBITDA came in ~9% below our estimates. We remain  E/W and continue to believe that as competitive supply  opens on Cotai and capacity constraints limit same-  store growth, WYNN will lag the overall Macau market.

We are lowering our PT to $130 from $148 to reflect lower Macau market-share forecasts and a higher discount rate on its Cotai project. Our Bull/Bear skew remains relatively even at ~1:1 (see page 2).
We highlight our key takeaways from the Q: (1) Still the Premier Property in Macau, but Share Losses Not an Anomaly, in our view. WYNN’s market share declined slightly in 4Q11 to ~13%.

We expect new openings and capacity constraints to cont. to weigh on mkt share. Our 2012 EBITDA estimate of $1.25 bn (12.5% share, 15% market growth), implies 5% y/y EBITDA growth.
(2) VIP Topline Softening. WYNN’s VIP roll declined for the second straight Q, highlighting what weexpect to be decelerating VIP market growth in ‘12. WYNN generates ~50% of its EBITDA from VIP. (3) LV Leisure Metrics Strong; Likely ‘+’ for MGM. WYNN’s non-gaming revs (+7%), aided by +12% hotel revenue growth, highlight improving leisure demand on the Strip. These trends appear to be continuing into the 1Q. We believe leisure growth, will be the key driver of a Strip-EBITDA recovery.  (4) Strong FCF Story Intact. We expect WYNN to generate ~$1.1 bn of FCF in 2012, a 7% yield that should limit LT downside in the stock

So What to do with My Short term Bullish trade from yesterday??

With the stock down about 3.81% this morning to about 116.50, the call fly that I bought for Feb regular expiration has lost considerable value, now worth about .50, I paid 1.30.  I am going to hold on to this for now as I think there is a decent chance the stock recovers a bit, especially if the market continues to march higher……

I don’t have a strong inclination that the stock will recover one way or the other, but at this point I think it is worth keeping on for a couple more days, this is obviously a momentum name and could be trading back above 120 by today’s close.

The way I see it, I now own the Feb 125 call for the value of the Call fly and at about .50 it seems dollar cheap to me.

Original Post Feb 2nd, 2012: WYNN: Report Q4 Tonight, Our Preview & Our “Wynn’ing” Play Back to It’s 200 Day MVA

WYNN ($119) reports their Q4 tonight after the bell.

-options market is implying about a 5.25% move which is basically the 4 qtr average for the stock.

-WYNN is up about 7.5% ytd, under-performing, LVS which is up almost 20% ytd (chart below).

LVS vs WYNN 12 month chart from Bloomberg LP


-WYNN’s under-performance of late could have something to do with i’s slightly rich valuation at about 21x next years earnings on 8% expected growth (only 6% sales growth), vs LVS that trades at about at 19.5x next years earnings that the street expects to grow at about 29% (22% expected sales growth).  Additionally, WYNN’s largest shareholder, Universal Entertainment (~20% holder), filed a lawsuit last month basically accusing the casino operator of misusing funds and asking for transparency of the company’s finances.

-Sentiment is a bit mixed on the name with 14 Buys, 10 Holds and 2 Sells, while short interest sits at a relatively high 6.25%.


The stock is about 30% off of the all time highs made last July and about 16% of of the 52 week lows made in December.  Since topping out in July after reporting their Q2 earnings, the chart has been in a massive downtrend, and just now appearing to peek it’s head above a key support /resistance level that is intact since early last year.

1 YR WYNN chart from Bloomberg LP


MY VIEW: this is not a company who’s fundamentals that I can speak to in any sort of informed fashion, but given LVS’s results last night, and the negative sentiment surrounding the Okada suit (which will not likely get resolved soon and more than likely  the company on the call tomorrow will adamantly refute), I could see the stock pop back towards its 200 day moving average over the next week or so on the least bit of good news.

After taking a very quick look at the name I think it makes a little sense, especially in this giddy market to make a low premium defined risk play that the stock tests it’s 200 day moving average of about $134, IF AND IT IS A BIG IF, THE COMPANY IS ABLE TO BEAT AND RAISE WHEN THEY REPORT TONIGHT.

MY TRADE: WYNN $118.70 Bought Feb18th Regular 125/135/145 Call Fly for 1.30

Bought 1 Feb18th 125 call for 1.90

Sold 2 Feb18th 135 calls for a total of .70 (.35 each)

Bought 1 Feb18th  145 Call for .10

Break-Even on Feb18th Expiration:

Profits btwn 126.30 and 135 make up to 8.70, with max gain of 8.70 at 135, profits trail off btwn 135 and 143.70

Losses of up to 1.30 btwn 125 and 126.30 and btwn 143.70 and 145, with max loss of 1.30 below 125 or above 145.