Monday, September 27, 2010

Wynn Resorts (NASDAQ:WYNN): Expect Continued Market Share Losses in Near Term at Wynn Macau - Barcap

Barclays is making some fairly cautious comments on Wynn Resorts (NASDAQ:WYNN) saying they expect continued market share losses at Wynn Macau. Firm is lowering estimates and price target.

Given their expectation for continued market share losses in the near term at Wynn Macau, Barclays is lowering their revenue and EBITDA estimates at the property. During firm's trip to Macau last week, many market participants remarked that several operators, including MGM, were attracting junkets from Wynn Macau.

Wynn has typically paid at or below market commissions in Macau; in recent months, the company has paid 40% of win compared to approximately 45% to 46% of win for the market. Wynn has typically been able to compete for junket VIP business through its luxury product and superior service while paying at or below market commissions.

Barclays is lowering their revenue and EBITDA estimates for the property. Wynn has typically paid at or below market commissions in Macau, instead competing for junket VIP business through its luxury product and superior service. However, as junket operators take advantage of an opportunistic commission environment, some are diversifying business away from Wynn. Wynn’s VIP market share has fallen in recent months, and the firm believes it could fall further in 4Q10.

They believe both player and junket demand for Wynn Macau’s luxury hotel product and premium service should mitigate or reverse these trends in the long term; however, in the short run, volatility in VIP volumes could result in lower results than previously expected.

Barcap's new 3Q10, 2010 and 2011 EBITDA estimates for Wynn Macau are $182.3 million (down from $189.9 million), $758.4 million (down from $782.6 million) and $773.8 million (down from $850 million).

Their Wynn Resorts 2010 EBITDA and EPS estimates go to $963.7 million and $1.44 from $987.8 million and $1.61, while 2011 EBITDA and EPS estimates decline to $1,009.4 million and $1.94 from $1,085.5 million and $2.42. Barcap's price target goes to $84 from $92. Maintains Equal Weight rating on the stock.

Notablecalls: When was the last time you saw an actual estimate cut on WYNN? I sure cannot remember one in recent history. Barcap is saying Macau is starting to see increased competition, which is going to eat into WYNN's margins.

I think this serves as a surprise to many. Stock should see some downside. Hard to quantify but maybe around 2-3 pts. I know WYNN is a cult stock, so be sure to adjust your risk accordingly.

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