Can Wynn Resorts break out of downward trend...

Rick Pendergraft

published in Blogs

Oct 31, 2019

Can Wynn Resorts break out of downward trend with earnings announcement?

Casino operator Wynn Resorts (Nasdaq: WYNN) is set to report third quarter earnings results on November 6 and the stock will be looking to break out of a downward trend with the results.

The stock has been trending lower since peaking in April and if we connect the high from April and July, we get a downward sloped trend line that is currently just below $130. The daily overbought/oversold indicators are in overbought territory and the daily stochastic readings made a bearish crossover on October 30.

The chart shows the downward sloped trend line, but it also shows a pretty strong support level at the $102.50 level. The stock has dropped to this area at the beginning of June, in mid-August, and again in early October. It would take a pretty big drop to get the stock back down to this area after the earnings report, but that could happen over the course of the coming weeks.

You can attribute the decline in the stock price to the fundamentals of the company. The company saw earnings decline by 6% in the second quarter and analysts expect earnings to decline by 17% for 2019 as a whole. As for the third quarter, the consensus estimate is for the company to report EPS of $0.90 and that is a huge drop from last year's third quarter EPS of $1.68.

Revenue grew by 3% in the second quarter and it has grown by 21% per year over the last three years. Analysts expect revenue to grow by 0.7% for 2019.

Wynn's management efficiency measurements are well above average with a return on equity of 46.9% and a profit margin of 14.5%. When you combine these figures with the sales growth for the company, you get an SMR rating from Tickeron of 37. This indicates that the company is slightly above average in terms of sales growth, profit margin, and return on Equity. The rating is based on comparative analysis of weighted sales, income margin and return on equity values compared against S&P 500 index constituents.

Unfortunately for Wynn this is one of the few indicators where the company ranks above average. The Tickeron Valuation Rating is at 74 and that indicates that the company is slightly overvalued in the industry. A rating of 1 points to the most undervalued stocks, while a rating of 100 points to the most overvalued stocks. This rating compares market capitalization estimated by our proprietary formula with the current market capitalization.

The Tickeron Profit vs. Risk Rating for Wynn is 100, indicating that the returns do not compensate for the risks. Wynn’s unstable profits reported over time resulted in significant drawdowns within these last five years. A stable profit reduces stock drawdown and volatility. The average Profit vs. Risk Rating for the industry is 75, placing this stock worse than average.

When it comes to earnings announcements, I have found that the sentiment indicators become more important than usual as they tell you what the investment community expects. If expectations are too high, the company has a hard time satisfying everyone. If the expectations are low, it's easy to impress investors.

Unfortunately for Wynn, the sentiment is rather bullish at this time. There are 18 analysts covering the stock at this time with 13 "buy" ratings and five "hold" ratings. This puts the buy percentage at 72.2%. This is in the average range, but with the stock trending lower and the fundamentals being rather weak, that might be too high. The short interest ratio is a paltry 1.8 so the odds of a short covering rally are rather low.

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