Investors wild for Wynn resort - Saturday 12th of March 2005

It's hard to tell who's more excited about Las Vegas mogul Steve Wynn's soon-to-be-opened resort: gamblers or investors.

Gamblers are giddy because the Wynn Las Vegas resort, which opens at the end of April, cost roughly $2.7 billion to build, easily making it the most expensive casino ever constructed in the world, topping even the marble-laden Bellagio, which turned heads when it opened in 1998. For that reason, rooms have already been selling out at an average of about $271, which is 15% more than Bear Stearns originally estimated.

Up to 8 million people are expected to visit the resort each year, which is 60% of the annual visitation of Disneyland.

Investors are giddy, too, and so far appear to be the biggest gamblers of all. Shares of Wynn Resorts(WYNN) have soared more than five times from the stock's first-day closing price after the initial public offering in October 2002. Not bad for a company named after someone who has had an often-cantankerous relationship with Wall Street and once swore he'd never take a company public again.

Making things more interesting, though, is that the stock is soaring while the company has consistently lost money and seen revenue shrink away (in its most recently reported quarter, Wynn had no revenue and lost $127.7 million).

It's hard not to recall the speculation over many dot-coms in the 1990s. In a way, this is even wilder, since Wynn's stock is soaring even before its only casino has opened for business.

Fans of the stock, though, point out that this is an extraordinary situation. Wynn Las Vegas is the biggest and grandest project yet from Wynn, who other city investors say morphed Vegas from a refuge for elderly slot machine players to the glitzy home of ultra lounges and poker clubs. The casinos he started, and those now owned by MGM Mirage ??? Treasure Island, Mirage and Bellagio ??? set the standard for what's cool in the city.

"Steve Wynn. He's the godfather of the town. No question," says George Maloof, one of the owners of the hip Palms resort in Las Vegas and co-owner of the Sacramento Kings basketball team. "He's building something spectacular that anyone will want to come and see. Steve won't let us down."

Anyone who has owned Wynn stock certainly can't complain. Investors insist the run-up in shares is reasonable for several reasons, including:

???Demand for Las Vegas continues to be insatiable. Last year, the number of visitors to Las Vegas grew 5.2%, says the Las Vegas Convention and Visitors Authority. But the number of hotel rooms for rent only rose 1%. The result? The daily average room rate rose 8.9%.

???Gambling stocks are on fire. Continued strong leisure-travel spending makes it hard to find a sector doing as well as gambling stocks.

Stocks in the industry have even outperformed some members of the market leader: energy. Wynn is a good example. Since the company went public, shares are up 432%. That blows away even shares of the world's largest oil company, ExxonMobil, which rose 69% during the same period. Wynn shares even topped the SPDR Energy Sector exchange-traded fund, which tracks 28 energy companies and gained 93% during that time.

???Macau is emerging. China fever is spreading to gaming stocks such as Wynn Resorts and another recent gaming IPO, Las Vegas Sands. Both have plans to build huge casinos in the Asian Vegas.

Wynn Resorts is building Wynn Macau next year, an estimated $704 million project that will result in 600 hotel rooms and 100,000 square feet of gambling area, Standard & Poor's says.

Gambling patterns of people in that region get investors especially excited. The relatively lower wages paid to casino employees there and its big spenders make Macau a big deal for investors, says Jason Schrotberger, portfolio manager with Turner Investment Partners, which owns Wynn shares.

"In Macau, the average player at the table will lose $25 an hour. The dealer makes less than $25 a day," he says. "Think of the leverage you have there."

???There is room for growth. While Las Vegas and Macau are first on investors' minds, there are opportunities for future growth, Schrotberger says. The company is bidding on projects in Singapore and Great Britain.

And there's still room for growth in Las Vegas. In the company's annual report, it says it plans to spend $1.4 billion on its Encore development next to the new Wynn tower. That's up from the $900 million originally forecasted.

???The company has an eye on efficiency.Wynn has designed Wynn Las Vegas intentionally to be more profitable, more quickly. The "C" shape of the casino, vs. the typical "Y," reduces walking times of staff and gamblers, Deutsche Bank's Marc Falcone says.

Wynn found out the hard way what happens if you ignore shareholders for long. Investors, including Kirk Kerkorian, launched a hostile takeover of Mirage Resorts in 2000. Investors were irate when Wynn spent more than $3 billion on casinos, including Bellagio, without boosting shareholder value. The company ultimately was bought by MGM. The Bellagio has since become one of the most profitable casinos in Las Vegas.

But whether Wynn learned from Mirage is just one concern for investors. Timing is another. Casino stocks run up ahead of the opening of a new facility, and then fall back as investors cool off. That's what happened when both the Bellagio in Las Vegas and Borgata in Atlantic City opened, Schrotberger says.

But some analysts say Wynn knows this all too well and will time the announcements of future casino construction to keep investors excited. For instance, next year, Wynn Macau opens, followed later by plans for another 135 acres the company controls in Vegas. "There's significant growth ahead," Falcone says.

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