Event: WYNN reports Q2 results tonight after the close. The options market is implying about an 8% one day move, which is rich to the 4 qtr avg move of about 6.5%. The implied move seems high considering that the 4 qtr avg is massively skewed by 16.5% decline last qtr.
Price Action / Technicals: WYNN is down 34% on the year, and down 61% from the all time highs made in early 2014.
This is really the only chart you need to look at, a bubble inflated and then quickly popped. The stock is now hovering near its 2012 lows:[caption id="attachment_55732" align="aligncenter" width="600"] WYNN 6 yr chart from Bloomberg[/caption]
Ok, there is one more chart you can look at, and that’s the 10 year chart. In February the stock broke the uptrend that has been in place since the lows in 2009 and it’s important to note that the stock is still up 600% from those levels:[caption id="attachment_55733" align="aligncenter" width="600"] WYNN 10 yr chart from Bloomberg[/caption]
Sentiment: Despite the stock’s precipitous decline over the last year, analysts remain on the sidelines with 9 Buy ratings, 12 Holds and 1 Sell. Short interest sits at 11.5% of the float.
Fundamentals: I guess all you need to know is that the company gets about 70% of their sales from Macau, and overall sales are expected to decline 20%, with consensus calling for a 20% increase in 2016 and 2017. There have been no shortage of challenges facing Macau gaming revenues over the last year from a corruption crackdown that caused a break in the high roller business, general weakness in China’s economy, the rise and fall of the stock market and of course floor wide smoking bans. As far as I can tell none of these headwinds look like they are going to abate soon. Oh, and to add a little wrinkle, Vegas which has been a perceived bright spot, saw gaming revenues decline 16% in June.
My View: The stock continues to be a tough press on the short side, but the path of least resistance seems to be down. At some point there will be an inflection point, where the news flow is not as bad as sentiment and the price action in the stock, but for now the fundamentals appear challenged with no end in sight to the weakness in China.
Investors appear to be just a tad worried heading into the print, with 30 day at the money implied vol quickly approaching two year highs:[caption id="attachment_55734" align="aligncenter" width="600"] From Bloomberg[/caption]
Long premium directional options trades look nearly impossible into the print. Which would generally lead you to short premium trades. But if you wanted to make a bullish bet that the stock would rise selling options, the July 31st weekly 90 puts look like a great sale at $1.20, in line with the implied move of about 8.5%. But its important to remember that the stock declined 16.5% last qtr, also from what was then very near a 52 week low. So if you are prepared to buy the stock at $88.80, then that looks like a decent way to sell vol, the implied move and make a slightly bullish bet into the print. Just seems like it could be picking up pennies off of train-tracks if they were to miss and guide down.
We will take another look after the news is out.
Estimates from Bloomberg:
2Q adj EPS est. 97c (range 73c-$1.22)
2Q rev. est. $1.07b (range $992m-$1.13b)
2Q total property Ebitda ests.;
Macau property, Vegas property:
Susquehanna: $320m; Macau $189m, Vegas $132m, Union Gaming: $315.6m; Macau $183.3m, Vegas $132.3m
2Q Macau property Ebitda margin est. Susquehanna 29.1%, Union Gaming 28.7%