Hedge Funds Cash in Chips on Wynn Resorts Stock Amid Macau Struggles

Posted on: December 4, 2019, 11:03h. 

Last updated on: December 4, 2019, 12:11h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Shares of Wynn Resorts, Ltd. (NASDAQ:WYNN) are up nearly 18 percent year-to-date, trailing the S&P 500 by about 600 basis points. Data indicates the stock’s third-quarter slide on the back of slack Macau data prompted some professional investors to reduce exposure to the gaming company.

The operator of the Wynn Macau and Wynn Palace tumbled in August as trade tensions between the US and China and geopolitical upheaval in Hong Kong, an important gateway to Macau, flared up. In September, the company forecast lower earnings before interest, taxes, depreciation and amortization (EBITDA) for July and August due in large part to softer gross gaming revenue (GGR) on the peninsula.

At Q3’s end, a total of 36 of the hedge funds were bullish on this stock, a change of -8% from the previous quarter,” according to Insider Monkey data. “By comparison, 43 hedge funds held shares or bullish call options in WYNN a year ago.”

The July through September quarter was a trying period in which to dispose of gaming stocks, including Wynn. During that time frame, the Encore Boston Harbor operator tumbled 17.17 percent, while the S&P 500 lost just 1.10 percent.

Declining Hedge Fund Support

As has been widely noted, gaming stocks are often favorites of hedge fund managers. But those pros’ declining interest in Wynn Resorts puts hedge fund ownership of that name well below some gaming industry rivals.

At the end of the third quarter, 44 hedge funds held bullish positions in Eldorado Resorts, Inc. (NASDAQ:ERI), an all-time high for the regional gaming operator, while 45 such funds were involved with Eldorado takeover target Caesars Entertainment Corp. (NASDAQ:CZR).

Moreover, hedge fund bullishness on Wynn has been declining for some time. The 36 funds holding long positions in the stock as of Sept. 30 is well below the 50 that were bullish on the name at the end of 2018’s first quarter.

In dollar terms, Egerton Capital Limited and Sculptor Capital, both of which retain Wynn stakes as of Sept. 30, are the largest hedge fund owners of the gaming stock, controlling $407.1 million and $163.1 million of the shares, respectively.

Abandoning Hope

Wynn stock is lower by almost six percent over the past week, and labors nearly 22 percent below its 52-week high. Add to that, some hedge funds completely abandoned the stock in the third quarter.

It’s worth mentioning that Lone Pine Capital sold off close to $670.4 million in stock, and Lee Ainslie’s Maverick Capital was right behind this move, as the fund sold off about $34.2 million worth,” notes Insider Monkey.

Wynn remains highly levered to Macau VIP gamblers, a segment that has seen significant weakness in recent months. In the September quarter, the company said operating revenue at its two integrated resorts there declined by $132.4 million and $105.3 million, respectively, due to sluggishness among high end visitors.

The company is heavily dependent on the Chinese gambling hub, as Wynn Palace and Wynn Macau combined for $1.09 billion of the operator’s $1.65 billion in third-quarter turnover.