Successful short seller has eyes for Wynn

A researcher and investor who foresaw the banking crisis, the residential and commercial real estate crashes and the downfall of General Growth Properties has set his sights on stock in Wynn Resorts Ltd. as a short-sell candidate.

Reggie Middleton, a Brooklyn-based investor who was months ahead of most analysts on numerous market-related events in the past two years, says in a nine-page report that Wynn Resorts stock is overvalued by about 26 to 65 percent.

Middleton decided to research Wynn because he spotted issues typical of companies heading for rough times.

“I look at companies with debt coming up or declining profits,” Middleton said. “Wynn came up a winner, or a loser.”

The report, published as proprietary research to subscribers to Middleton’s BoomBustBlog Web site, cites $1 billion in debt coming due in June 2010.

It also notes falling room rates have increased the company’s dependence on casino revenue, a notoriously volatile source even in good times.

It was published Sunday and was written when Wynn stock was trading at about $26 per share. The 52-week high was $119. It closed Thursday at $23. Stock in most major gambling companies has taken a beating in the past year.

In January, four of the eight casino operators tracked by Applied Analysis, a Las Vegas-based financial consulting firm, suffered better than 23 percent declines in their average daily stock price during the month compared with December. The shares of two other companies traded down more than 10 percent. The month played havoc on the Applied Analysis Gaming Index, which includes three slot-machine manufacturers. The index fell 89.2 points to 480.49, a 15.7 percent decline. “The gaming sector posted a bigger downturn in valuations when compared to the broader market’s drop of 6.8 percent,” Applied Analysis principal Brian Gordon said when he published his report.

Middleton’s conclusion is counter to other analysts who are betting in large part on the strength of the Wynn brand to buoy stock values.

Analyst Joel Simkins of Macquarie Securities recently upgraded Wynn Resorts from “underperform” to “neutral.”

“Although we find it difficult to pinpoint the bottom as it relates to sentiment on Las Vegas and Macau, we would prefer to take our ‘chips off the table’ at this point as long-term, we believe Wynn should be a survivor, has best in class assets in its two markets, and the premier brand in gaming,” Simkins’ report stated.

Wynn is scheduled to announce fourth-quarter and year-end earnings for 2008 on Tuesday.

Wynn Resorts spokeswoman Jennifer Dunne said company officials had not seen the report and wouldn’t comment on the findings.

Wynn Resorts is controlled by Las Vegas casino developer Steve Wynn and is the parent company for Wynn Las Vegas and Encore, two of the most prestigious resorts on the Strip. The company also owns a resort in Macau.

Middleton is an investor, researcher and sometime short seller, someone who borrows stock at a given price hoping the price will fall so he can pay it off later at a lower price, pocketing the difference as profit.

On his blog he forecast the commercial real estate crash as early as autumn 2007. He also was one of the first analysts to say publicly that General Growth Properties was carrying too much debt to continue as a healthy company, months before company officials even acknowledged a problem.

On Wall Street, short sellers such as Middleton are often characterized as vultures who by rooting for prices to fall artificially deflate the value of stock.

Short sellers say they are a critical check on the marketplace, which is often influenced through hype from company officials or by analysts working for firms seeking to curry favor with the companies they cover.

Contact reporter Benjamin Spillman at bspillman@reviewjournal.com or 702-477-3861.

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