Monday, January 29, 2007

Calls of Note Part 5

Bear Stearns is upping their year-end 2007 price target on Wynn Resorts (NASDAQ:WYNN) to $124 from $108, after reviewing their previous sum of the parts analysis that provided the basis for price target. They are not changing their estimates (as they are above consensus for 4Q06 and 2007).

This morning, the firm initiated on LVS with a Peer Perform and lowered rating on MGM to Peer Perform, so why are they viewing WYNN differently? Simply put, they think by applying the same LV Strip- and Macau- target multiples to WYNN derives a much higher share price. Firm views this as a consistent valuation approach within our coverage universe. In addition, they would not recommend having zero portfolio exposure/new money going into the LV Strip and Macau -centric stocks and think WYNN has more upside than the others.

Using target EBITDA multiples of 10x to 12.5x for Las Vegas Strip cash flows & 11.5x to 14x for its cash flows (these are consistent for target multiples that they use for MGM & LVS , the firm believes fair value for to be in the $106 to $142 range, or an average of $124, which implies upside of 15% from current levels.

Additionally, they see several catalysts for WYNN that should move shares higher over the coming months: 1) a likely strong Chinese New Year's Eve (1Q07), 2) a good 4Q06 out of Macau and 3) the February 2007 opening of Spamalot, which should lift entertainment and casino revenues at its
LV property.

Notablecalls: Reminds me of Mastercard (NYSE:MA) from last week. Actionable call alert!

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