WYNN Q1 Earnings Preview

by Enis May 1, 2014 2:43 pm • Commentary

Event:  WYNN reports its Q1 earnings today after the close.  The options market is implying about a 5.5% one day move, which is above  both the 4 qtr avg of about 2.75% and the 8 qtr avg of about 3.25%.

Sentiment:  Wall Street analysts are somewhat bullish on the stock, with 15 Buys, 9 Holds and 1 Sell, and a 12 month price target of $251.  Short interest sits at 3.5% of the float, which is at the lower end of the 1 year range.  WYNN is up 6% so far year-to-date.

Options Open Interest:  Puts outnumber calls by a ratio of more than 2 to 1 in total open interest, quite a skew for any name, especially for a $20 billion market cap stock.  The average one month volume has favored puts over calls by a more subdued 1.4 to 1.  The May17th 210 puts are the largest open interest, at over 20k.

Price Action / Technicals:  The technical levels are pretty obvious in WYNN.  It’s the 50 day ma on the upside (now around $223), and the 200 day ma on the downside (now around $182):

[caption id="attachment_39856" align="alignnone" width="600"]WYNN daily chart, Courtesy of Bloomberg WYNN daily chart, Courtesy of Bloomberg[/caption]

However, ever since the early March high, it’s been a clear trend of lower lows and lower highs for WYNN.


In Dan’s MorningWord from April 22nd, he summarized the fundamental view on WYNN:

In that trade idea from February, I laid out the following rationale for my bearish view:

From where I am sitting the stock is priced to perfection trading at 25x this years expected earnings that are only supposed to grow 7% year over year on sales growth of the same.

In my mind there seems to be a fairly odd disconnect btwn the prevailing macro theme of weak growth in the emerging world, specifically China, and that of the prospects of companies like WYNN who rely a great deal on the Chinese consumer for their sales and almost all future growth.

I still view that to be the case, and don’t like the stock’s long-term prospects. But after a 20% round trip in WYNN, first higher, then lower, in the past few months, your guess is as good as mine on what the stock does after they report this quarter’s earnings.

Volatility:  30 day implied volatility in WYNN recently hit a 2 year high, after the stock sold off aggressively in the past 2 months:

[caption id="attachment_39857" align="alignnone" width="600"]30 day implied volatility in WYNN, Courtesy of Bloomberg 30 day implied volatility in WYNN, Courtesy of Bloomberg[/caption]

That is quite a spike, and an illustration of how quickly options prices can move when the trend changes.

Our View:  It is our sense that WYNN management will be the last people on the planet to admit to any sort of slowing in Macau. So much of their current valuation and their future growth is tied to the region so regardless of the news, we expect Steve Wynn to put a very nice spin on it.  Gun to my head the stock pops, and then if it does not make a new high (above the previous high last month of about $219) then I think it sets up as an attractive short playing for a move back below $200 and possibly testing the 200 day moving average near $180.  We are clearly in a traders market and we see little reason to step in front of potentially volatile events (see price action in YELP).  We will take another look in the morning.