Downgrading Wynn Resorts on Weak Industry Trends, Lower Estimates

6/27 - "Las Vegas gaming operators continue to feel the pressure of higher fuel prices and a sluggish economy. In Macau, revenue and visitor growth are still strong, only not as strong as many on Wall Street expected. Furthermore, higher global interest rates could exacerbate competitive pressures in both Las Vegas and Macau. For these reasons, we are lowering our earnings estimates on WYNN and suggest that investors view the gaming sector very cautiously in the near term. 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 we are afraid WYNN's shares will under perform over the near term. Combining the negative group psychology with our new, lower-than-consensus estimates necessitates us changing our investment rating on WYNN from HOLD to UNDERWEIGHT with a downside price target of $70."

"We are providing updated estimates for 2008. Our GAAP estimate is $1.58, which "adjusts" to $2.60 (previously $2.76)when pre-opening, property and financial instrument charges are removed. Although we prefer GAAP earnings, we do conform to the adjusted compilation in order to be on the same basis as the majority of Street estimates. Our remaining 2008 quarterly EPS numbers are now $0.68, $0.47 and $0.76, respectively. We are adjusting our 2009 EPS estimate to $2.86 from the previously more bullish $3.04."

"Our downside price target of $70 represents an 11.5x multiple of our 2009 cash flow estimate to current enterprise value. Even at that level WYNN would still be trading at a premium to its gaming group average, albeit what we believe to be a better reflection of risk/reward in the gaming group today."

"WYNN's enterprise value is currently 13.3x our 2009 EBITDA estimate, above the gaming group average of 8.8x and the peer group average of 11.8x. Our downside price target of $70 represents an 11.5x multiple of our 2009 cash flow estimate to current enterprise value. On a P/E basis, the shares trade at 30.5x our 2009 earnings per share forecast, vs. a gaming group average of 16.1x and the peer group average of 25.1x."