Yet it's assumed that smart money will flee a stock like this once its success is more widely recognized. Just to put the icing on the cake, a Merrill Lynch analyst on Wednesday downgraded shares to sell from neutral. David Anders said the company's balance sheet is "nearly exhausted" after blowing through a sizeable portion of its announced $5 billion in capital projects since its initial public offering.
The Wynn Las Vegas is reported to have cost $2.7 billion, and Encore is expected to cost another $1.4 billion. The company has also bid for a casino project in Singapore, which is expected to cost another $1 billion. The Macau project, which was approved Tuesday, will be a joint venture with Pansy Ho Chiu-king, the daughter of Asian casino magnate Stanley Ho.
The brokerage CIBC has weighed in with those who consider the stock overdone and fully valued. Even at optimistic multiples to estimated enterprise value through 2007, CIBC said it thinks investors are counting on extremely high growth expectations for its castles in the air. You could fault the analyst for downgrading after a nearly 30% decline, but as we all know by now the first 30% can be just a single big step in a down staircase.
Related Stories Beware These Shifting Sands Singapore Tips Its Hand Wynn Shares Up on Expansion Plans Vegas Boom Sees No End Casino Deals Put on Hold Las Vegas Gaming: Let It Roll
Of course, Wynn's slide should not be seen in isolation. Harrah's Entertainment (HET:NYSE - commentary - research) and Boyd Gaming (BYD:NYSE - commentary - research) have both rolled snake eyes of late. And supplier International Game Technology (IGT:NYSE - commentary - research) is out this morning with a subpar earnings report as well. International Game is down 45% from its high, while Harrah's and Boyd are down 14%. They may not be as vulnerable, as they have successful ongoing operations.
Investors may need to see results of the Las Vegas resort before ponying up more for the shares. The easy money here has already been made, and future gains will come from concrete results -- not expectations of another casino opening.
From a technical point of view, the stock has seriously rolled over, and broke intermediate-term support on big volume Wednesday. This is the time and place where bulls like Legg Mason -- which initiated the stock last week with a buy rating, an $80 target and a comment that it represents a significant three-year growth story for the gaming industry -- have to step in and give their baby some love. And they may well do so, as casino stocks have come up big for investors for the past five years. If not, however, there may well be another $10 to $15 decline in store, to the low $40s, before the tumbling dice stop rolling.
Next week, the newest and most costly casino resort ever built in Las Vegas will open its doors to the public. The copper-colored windows, the curved architecture, the mountain in the middle and its sheer size are sure to catch any visitor's eye. At the top right of the building, the developer, Steve Wynn, who built the Bellagio and other monuments to excess, has scribbled his last name, a la Donald Trump.
Maybe right under it, in flashing neon lights, it should say, "Short me."
Funding for the project came from a public offering of shares in an entity called Wynn Resorts (WYNN:Nasdaq - commentary - research). There was considerable chutzpah in offering the shares, since the entire company was on the come. You could forget about calculating a price-to-earnings or price-to-sales multiple on this outfit. It had neither revenue nor income. Yet that did not stop gamblers, I mean investors, from snapping up shares, as the stock moved from $13 in October 2002 to a high of $76 last month.
So now we've got an interesting situation, much like the recent collapse of Martha Stewart (MSO:NYSE - commentary - research) after the home improvement diva drew a get-out-jail card. That is, Wynn has become a "sell the news" story for earlybird investors who bought the rumor that the difficult and expensive project would pan out and open on time. It's already down more than 25% from its peak, but is still trading at such an extraordinary multiple that it is vulnerable to further weakness as investors move on to new stories.
To be sure, although Wynn Resorts has not yet made a penny, even in the quarter slots, it is expected to ring in the profits for many years. It has plans for another project on the current property in Las Vegas in 2008, named Encore, and another property on Macau, a bacchanalian island off the southern coast of China. Analysts are expecting $1.15 per share in earnings for 2006, equating to a lofty PE of 48, which is high but not Internet-level extreme.