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Best of Howard Stutz

Gaming Guru

Howard Stutz

Gaming stocks: Wynn relishes another encore

22 July 2008

LAS VEGAS, Nevada -- "Always Look on the Bright Side of Life," is a popular song from the Broadway musical "Spamalot," which recently ended its 14-month run at Wynn Las Vegas.

Wynn Resorts Ltd. Chairman and CEO Steve Wynn seems to have taken those lyrics to heart.

As the value of gaming stocks crumble around him, Wynn took steps with the financial markets to shore up the price of his company's sagging shares, preannouncing second quarter earnings and increasing the amount of a stock repurchase program.

Wynn Resorts began the process Monday to fill a planned 5,300 jobs at the $2.2 billion Encore at Wynn Las Vegas, which is scheduled to open in late December.

The moves increased the company's stock value by 20 percent and gave Wall Street a reason to tout the Wynn's future.

Jefferies & Co. gaming analyst Lawrence Klatzkin said the early earnings announcement made him even more confident about Wynn Resorts. The company officially will release results Thursday.

"(Cash flow) in Las Vegas was in line with our forecast despite back luck," Klatzkin said in a note to investors Monday. "Wynn has a considerable land bank (142 acres which includes the Wynn golf course) on the Las Vegas Strip to which we believe the market is giving no value. We see Wynn as a company with strong future growth both in Las Vegas and Macau."

Wynn, the 66-year-old founder of the casino operation, is not dismayed by troubles befalling Las Vegas and the gaming industry. Casino revenues on the Strip are off 5.4 percent during the first five months of the year, but Wynn said his 2,700-room flagship is holding its own in the market.

However, Wynn Resorts, in its preliminary earnings forecast, said the operating income at Wynn Las Vegas could be down as much 65 percent from the same quarter a year ago, while cash flow will decline up to 27 percent. Those losses would be offset, however, by healthy increases in the same categories at Wynn Macau.

Meanwhile, since October shares of Wynn, traded on the Nasdaq National Market, have fallen almost 50 percent in value.

"I love the investment in this company," Wynn said during an interview to discuss hiring at Encore. "We love our position in Las Vegas and China. We also love our balance sheet. We love our land holdings in Las Vegas. Between debt and equity, we have about 25 percent debt. Some of our competitors have up to 70 percent debt."

Wynn Resorts preannounced second quarter earnings on July 10 and also said it was adding $500 million to a previously announced $1.2 billion stock buyback plan. Shares of Wynn Resorts shot up almost 15 percent in after-hours trading. On Monday, the company's stock price closed at $93.43, more than 25 percent higher than it was before the announcement.

Wynn, who controls 24 million shares of the company's 111.8 million outstanding shares, is bullish on the future, not only for Wynn Resorts but the gaming industry as a whole.

"We have had recessions, two or three of them, and we've lived through them," Wynn said. "The difference now is that we have all these Internet bloggers and half-assed observers. Seventy percent of what they write is total bullshit and total fiction. The market right now is stinky and volatile. I preannounced because I didn't want to be restrained if I wanted to buy some shares. I'm not saying I'm going to buy, I just didn't want to be blacked out."

Wynn believes the current job climate -- Nevada's unemployment rate was 6.4 percent in June, far above the national rate of 5.5 percent -- will increase the number of applications at Encore, which will be a separate hotel-casino connected to Wynn Las Vegas.

The company began accepting applications online and at an employment center and expects to see 12 applicants for each available position.

Wynn wouldn't be surprised to see the number of applicants surpass the planned 65,000.

"There are a lot of people out there looking," said Wynn, who expects to move 1,700 Wynn Las Vegas workers over to Encore and fill those positions in the hiring process.

He plans on opening Encore Dec. 21, but knows the construction process could move the date. Encore will have 2,034 rooms, five restaurants and add 60,000 square feet of meeting space to the 200,000 square feet already available at Wynn Las Vegas.

The casino, Wynn said will be similar to the casino at Wynn Macau, where portions are separated by half-walls and chambers to give it a more intimate feel. Also, Wynn took down the 280-foot wall looking out toward the resorts' swimming pool and replaced it with glass. The atrium is much larger than at Wynn Las Vegas.

"We wanted intimacy, not grandeur," Wynn said. "Encore will be a much different experience."

Like his previous projects, The Mirage, Bellagio and Wynn Las Vegas, Wynn said he is keeping some parts a secret. He also doesn't want to give anyone a preview until sometime in the fall.

Gaming stocks: Wynn relishes another encore is republished from