The so-called smart-money set is placing a sizable wager on the shares of Wynn Resorts.
In the past three weeks alone at least two hedge fund honchos aggressively boosted their stakes in the casino operator’s depressed stock, which is down about 30 percent from its May high.
On Thursday, Stephen Mandel Jr.’s Lone Pine Capital disclosed in a regulatory filing that as of September 10 it owned nearly 5.96 million shares of Wynn, or 5.4 percent of the total outstanding. This is up nearly 57 percent from the roughly 3.8 million shares it reported owning at the end of the second quarter.
In the second quarter Lone Pine had already boosted its stake by 68 percent, according to regulatory filings. The Tiger Cub is currently the company’s fourth-biggest shareholder.
Meanwhile, Gabriel Plotkin’s Melvin Capital Management reported that as of August 27 it boosted its stake in Wynn by more than 5.2 million shares and now owns more than 5.77 million shares, making it the fifth-biggest shareholder. Other sizable shareholders include Egerton Capital and Third Point.
Lone Pine and Melvin each did not return calls seeking comment or insight into their investments. The two firms heavily doubled down on the stock at the same time that Wall Street’s sell side has been steadily cutting its price targets on the stock.
For example, on August 2 Barclays trimmed its price target from $224 to $213. On August 14 UBS reduced its target from $195 to $165. Then, on September 7, Credit Suisse — which only recently began following the casino industry — trimmed its price target from $155 to $137.
Lone Pine and Melvin apparently are betting the worst is behind the company and the shares will rebound. Wynn is facing a host of legal, operating and geopolitical challenges, several of which are shared by its industry peers.
Wynn and other gaming companies are dealing with concerns that the Chinese economy is slowing down, weaker-than-expected results at their Macau operations, a weaker outlook for Las Vegas, and overall investor rotation out of gaming stocks, pointed out a recent report from Morgan Stanley. The investment bank said Wynn is the U.S. gaming stock most sensitive to the overall slowdown in Macau.
Wynn also has its own set of issues.
There is the fallout from the sexual misconduct allegations levied against former chief executive officer Steve Wynn, who resigned earlier this year. At the least, this development “adds fundamental uncertainty,” Morgan Stanley told clients.
Meanwhile, there are several lawsuits and investigations launched against the company in connection with its much-anticipated Encore Boston Harbor luxury resort and casino in Everett, Massachusetts, just outside Boston, which is scheduled to open in June.
The most recent one was filed a few days ago by Sterling Suffolk Racecourse, alleging Wynn lied and covered up Steve Wynn’s misconduct to secure the Everett license. https://www.apnews.com/a56e20ed9eef47ee9c027e80b05d35b0
The company is also being sued by a part owner of the land sold for the Everett casino, who alleges he was cheated out of money.
Meanwhile, the Massachusetts Gaming Commission in January launched a review to determine whether Wynn Resorts is fit to hold the license.
Still, bulls point out that the company has attractive assets in Macau and Las Vegas. They also assert that the stock already reflects reduced expectations and the current legal and operational uncertainties.
“We are positive on the long-term outlook for Macau but think the coming 12-18 months could be volatile, given macro, geopolitical, and licensing risks,” Credit Suisse said in its report, noting Wynn’s Macau licenses expire in 2022. “We see Las Vegas as a cyclical but long-term growth market, given strong leverage to U.S. and global travel.”
