Analyst knocks Encore; sees soft 1Q for Wynn Resorts

Apr 14, 2009 5:10 PM
by Ray Poirier |

Even after dipping, following the February revenue report for Nevada’s casinos, most major gaming companies saw their share prices continue to benefit from the markets improved performance over the past month.

Still, analysts rarely agree on the prospects for individual companies. Case in point is Wynn Resorts Ltd. (WYNN), whose shares closed on Monday at $31.44 each, a recent high.

And, this came on the heels of a clients’ note filed by Matthew Jacob of Majestic Research. He indicated in the report that he expects Wynn Resorts to have a soft first quarter, primarily because of weak results from the company’s newest gem, Encore, on the Las Vegas Strip, and a significant dropoff in traffic among Macau tourists.

As for the Encore performance, Jacob went so far as to suggest that the design of the new facility is hurting business.

Plainly stated, Encore’s layout may be turning off some customers.

"We believe, furthermore, that some players prefer Wynn’s more traditional casino setup—one large room rather than Encore’s more unique chambered setup – and are choosing to gamble at Wynn Las Vegas instead of Encore," Jacob wrote.

Oddly enough, just a week earlier, Jacob’s former boss and mentor at UBS Securities, Robin Farley, upgraded WYNN shares from her previous "neutral" rating to a "buy."

Farley indicated that she was impressed that the company had no debt interest due this year and has about $1.6 billion in cash available for corporate activities.

Joining Farley in singing the praises of Wynn Resorts was analyst Janet Brashear of Bernstein Research.

"The company has a very small margin of error on the U.S. covenants, but we believe that any number of measures, including cost saving initiatives, or Las Vegas performance in excess of our conservative estimate, will give the company more room to maneuver," Brashear wrote to her clients.

Brashear maintained an "Outperform" rating on WYNN shares.

Of the 14 analysts who follow the Wynn Resorts shares, four have a "buy" rating, eight have listed the shares as a "hold" while two are "moderate sell."

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