Friday, July 11, 2008

Gaming Stocks Absolutely Destroyed Yesterday

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Did I mention avoid anything to do with the U.S. consumer? Yesterday...
  1. Wynn Resorts (WYNN) down 10%
  2. Las Vegas Sands (LVS) down 11%
  3. (grand prize to) MGM Mirage (MGM) down 21%
Story to follow (we've been on this since last summer)... but thankfully Steve Wynn decided to destroy the greedy shorts in afterhours with a $500M buyback, taking shares up 15% in after hours and pushing the other 2 names up in sympathy.
  • Casino operator Wynn Resorts Ltd (WYNN) said on Thursday it would increase its share buyback program by $500 million, and its stock jumped nearly 15 percent in extended trade.
  • In a statement, Wynn said the new buyback program would come on top of a previously announced $1.2 billion repurchase plan.
  • Separately, Wynn said second-quarter operating income for its Las Vegas casino, on a GAAP basis, would be between $18 million and $22 million. That is down from $63.4 million in the same period last year.
  • Wynn's Las Vegas casino has drawn fewer consumers to the resort as current U.S. economic woes such as the declining home market and higher gas prices have forced Americans to cut discretionary expenses.
As they say, in bear markets - its very hard for either bulls or bears to make money. The bears were sitting back, drinking their honey, and bloated with gains, when Mr. Wynn laid down the hammer. This is another one of my favorite "managers"; it is too bad his industry is in a death spiral in the United States of Subprime. Look how smart he is, announcing a huge drop in profits ($18 - $22M vs $64M the year before) but still trouncing the bears with the buyback news. That's the type of management you want to have on your side.

But let's look at the bigger macro picture - a theme we've discussed many times here. (We're early) And it's getting worse by the month. Thankfully we are not in a 'technical recession' or anything.
  • Casino stocks were battered again Thursday, with shares of the big players scraping to multiyear lows on the back of news of a precipitous drop in Nevada's gambling revenue.
  • Statewide, gambling revenue in May slumped 15%, with a roughly similar pace of decline in table games and slot machines alike. Things were even worse on the Las Vegas Strip, where total gambling revenue fell 16.4% -- the largest decline yet in 2008, and one that is at an increasing rate as quarter-to-date revenues for the Strip are off 9%.
  • "The decline in Strip revenues is worse than the period immediately following Sept. 11, 2001 and except for January 2002 is the worst monthly performance in more than 10 years," analyst Robin Farley of UBS wrote in a research report. "The weakness in gaming revenues was not confined exclusively to the Strip as the Las Vegas locals market declined 19.5% in May, bringing year to date revenues down 8.7%
  • By way of contrast, last fall MGM shares cracked $100 at one point; Sands was nearly $150; Wynn traded above $176 (some of the best shorts outside of financials - unfortunately for me there is no Ultrashort Casino ETF)
  • He sees no immediate end in sight either: "We are recommending that investors avoid the Las Vegas-centric stocks as it appears that market is performing worse than some of the regional ones. People are just staying closer to home."
  • "Despite efforts to disguise discounting on the high end, many of Las Vegas' luxury resorts are slashing rates" as well as offering additional lures including meal credits, free play and even airfare and gasoline rebates.
But hey, as with all things in America now - thank god for China (Macau)
  • (for Wynn) In Macau, however, operating income is expected to be in the range of $100 million to $106 million, compared with $53.2 million in the year-ago period, the company said.
But that's not enough reason to buy these names. Now, they will bounce, and when the market runs - they will rally. And they'll be an excellent short (again) as there won't be a 2nd half 2008 recovery. Nor a 1st half 2009 recovery.

No position but would of been short if I could (but covered earlier than this for fear of dead cat bounces)


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