Wednesday, February 04, 2009

Wynn Resorts (NASDAQ:WYNN): Downgraded to Underweight, $21 tgt at Keybanc

Keybanc is out with a downgrade on Wynn Resorts (NASDAQ:WYNN) downgrading the shares to Underweight from Hold after the co announced substantial labor cost cutting initiatives for its Las Vegas properties.

Firm notes this is the first time they can ever remember this management team taking such drastic measures. In addition, on a conference call Steve Wynn commented that spending (labor, marketing, promotions,etc.) on the Encore opening was of a magnitude consistent with a boom time economy. These two data points combined with a severe recessionary climate in both of WYNN's markets cause them to lower their 4Q08 earnings estimate and reevaluate their investment opinion on these shares.

Keybanc is lowering 4Q08 EPS estimate to $0.40 from $0.45 (consensus is at $0.52) and believes there are few companies in the gaming sector with near term prospects and catalysts. Longer term, Wynn Resorts has among the best growth pipelines in the industry. Between 150 well located acres in Las Vegas and a 52-acre site on the Cotai strip in Macau, WYNN should be set for the next five to 10 years growth. That being said, the skittish investment climate today does not augur well for any gaming company and they are afraid WYNN's shares will under perform over the near term. The combination of negative group psychology, today's revelations and our new lower than consensus estimates, necessitates us re-instituting an UNDERWEIGHT investment rating on WYNN, with a downside price target of $21.

Notablecalls: This stuff does not look good. I think the stock can go to $20 in a jiffy if current sentiment prevails in the n-t. Definitely not saying WYNN is similar to LVS or MGM but I'm just hard pressed to see any meaningful buyers step up around here.

Couple of pts of downside is what I think may be in store for WYNN today.

Oh and btw, Merrill/BAC is lowering their tgt on MGM Mirage (NYSE:MGM) to $5 from $11.

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