(WYNN) Wynn Resorts Broken or a Buy?

Are the casinos with Macau operations at the top of their game, with no where to go but down? That’s a question gaming investors are asking after the reaction to Wynn Resorts (WYNN) earnings miss last week where the stock took a $20 (15%) dive.

Despite posting net revenues up over 29% and a dramatic 170% surge in profits from the year ago quarter, the company missed adjusted estimates of $1.17 EPS with a $1.05 showing. Macau was still the source of growth for Wynn — vs. Las Vegas — but there are concerns that growth could be leveling off, especially as the Chinese economy slows down.

I thought the stock was a buy last week on the overreaction, and I look right today with the bounce off of $117 last Thursday getting us up above $127 today. But, a deeper exploration of what drives the profits of Macau gaming tables is worth a look before jumping all in.

Here’s the deal: We all know that rich Chinese mainlanders love to gamble and that Macau is their only legal “homeland” place to go. But monetary tightening in China will hurt the lending liquidity of Macau’s “junket” operators, the middle-men who advance credit to these gamblers. And this in turn could dry up the casinos’ growth trajectory.

What overall impact this will have is still being absorbed. You can see from the earnings estimate tables below that many analysts have been busy bringing their projections back down to earth since the miss last week, and even before that. But there’s still a handful who have raised recently.

As this consensus battle gets sorted out over the next two months until they report again in January, let’s say that WYNN 2012 EPS projections drop significantly to only $6. At a share price of $130, that’s a sub 22 forward P/E multiple.

For a dominant high-end, luxury player in the Macau gaming scene, this is an attractive price to pay for solid double-digit earnings growth. And though the Chinese economy is the giant wild card here, growth is still on the horizon for WYNN as the new Cotai strip development is expected to add strength to its already solid balance sheet.

Macau competitors Las Vegas Sands (LVS) and MGM Resorts (MGM) are certainly benefiting from the same trends and since all 3 stocks currently hold the Zacks #2 Rank (buy), they should all be looked at for opportunities.

While MGM is still projected to be unprofitable next year, LVS actually has a better looking chart than the “toppy” WYNN. Remember that late September crashing sound you heard? That was WYNN falling through its 200-day moving average like a trap door just opened underneath it.

With its 50 and 200-day moving averages now threatening to cross bearish and the stock looking heavy, WYNN is going to require some good timing to trade. Opportunities will be there and reward will be commensurate with skill.

So, for the same growth rate, I’d lean toward LVS at $45 for a position trade, and only dip my toe when WYNN dips below $120 for a swing trade.

Kevin Cook is a Senior Stock Strategist with Zacks.com

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