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Wynn Resorts, Limited Stock Gets Hit by the Fundamentals, Not #MeToo

Josh Enomoto

In what’s turned into a national embarrassment, powerful men are crumbling before our eyes. The populist #MeToo movement has largely taken down Hollywood producers and celebrities, but, earlier this year, Wynn Resorts, Limited (NASDAQ:WYNN) CEO Steve Wynn was forced to resign due to sexual misconduct allegations. Is this the end of WYNN stock?

Not quite.

However, if you’ve made significant profits on WYNN, it may be time to consider taking some off the table. In fact, I wouldn’t be opposed to taking all profits off the table. The #MeToo controversy is an incredible public relations nightmare for Wynn Resorts. It has already negatively impacted shares, notwithstanding the Wednesday spike rally. Against the closing high of this year, the company is down 10%.

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But that’s not why I’m turning bearish on WYNN stock. While the former chief exec’s behaviors (if true) are revolting, that in and of itself isn’t a deal-breaker. Remember, several women accused Donald Trump of similar improprieties, yet, today, he’s the President of the United States.

For me, it really comes down to sector fundamentals. A cursory look at Expedia Inc’s (NASDAQ:EXPE) reveals that Wynn Resorts is one of the priciest places you can stay in Las Vegas — even more so than Trump International. That means WYNN needs high-rollers to come in.

Instead, they’re getting mom and dad and weekend warrior types.

More People, Less Money for Wynn Resorts

Generally speaking, I love the casino and gaming industry for one simple reason: they’re vice stocks. The old marketing adage is “sex sells”. For investors, if your target company smokes, drinks or engages in “mature” activities, you probably have a profitable opportunity.

That said, Wynn Resorts is a different animal. Depending on the season, you can expect to pay $300 for their cheapest room on a weekday. Thus, you not only want gamblers coming over to Sin City, you need addicted gamblers that can afford their addiction.

For WYNN stock, the statistics show a case of ho-hum news and bad news. On the somewhat positive end, Las Vegas is attracting a record number of visitors. Two years ago was an all-time record, with 42.9 million visitors. Last year was a little bit disappointing in that it didn’t exceed the prior year’s haul; nevertheless, Vegas saw a whopping 42.2 million visitors.

Las Vegas stats, Wynn Resorts

But the bad news is that these folks would rather spend their lodging money at Motel 6 rather than Wynn Resorts. I say that because Clark County’s record gaming revenue tally occurred back in… wait for it… 2007! In that year before the big, global collapse, gaming revenue brought in just under $10.9 billion. Last year, revenue was just under $10 billion.

If you’re an optimist, you might say that 2018 will be the breakthrough year. Maybe. But don’t forget that revenue per visitor is down from $277 in 2007 to $236 in 2017. That’s almost a 15% drop, which is incredibly significant because we’ve been enjoying a big economic recovery, right?

WYNN Stock Needs High-Rollers

Some might say that you shouldn’t consider just one metric to assume that the affluent are shunning Las Vegas. I agree. That’s why I’m also concerned about the rising number of convention delegates. Last year was a record for convention delegates, who numbered over 6.6 million.

So, what’s wrong with that?

Actually, it’s not a good nor a bad figure. However, the percentage of convention delegates relative to total visitors has been roughly the same in 2007 and 2017; roughly speaking, just under 16%. The issue I have is that the revenue per visitor is worsening. Again, it implies that the people who are visiting Sin City are not necessarily visiting Wynn Resorts.

This is an obvious headwind for WYNN stock. When I worked for Sony Corp (ADR) (NYSE:SNE), the Consumer Electronics Show was — and still is — a big deal. Almost as important, though, was mitigating costs. You couldn’t just ask your department head to sign off on your WYNN lodging request unless it was absolutely critical. Even then, the top dogs got choice selection.

While going to Las Vegas on the company’s dime sounds like a lot of fun, it’s not. You have to be on your best behavior and avoid all temptations. That’s not the kind of visitor that WYNN wants.

What happens there might stay there if you’re alone. When you’re with your co-workers, “it” ends up on your performance review.

If “it” is particularly egregious, “it” ends up on your termination papers.

Just ask Steve Wynn.

As of this writing, Josh Enomoto is long SNE.

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