9 months ago, Wynn was trading at a P/E ratio of 30. It is now down to 19. When I last covered the stock in April, I warned it was very expensive, and should not be bought without OTM put options to hedge any capital loss. Since then, WYNN has collapsed 24%. Even so, now is not yet the time to buy.
The latest news surrounding them is that, for whatever reason, the board has slashed Steve Wynn’s base salary and limited him to $250,000 in private jet travel a year as opposed to having an unlimited global ticket to anywhere he wants. The troubles of a billionaire CEO, as they say. By contract, he must use the private company plane for security reasons, even for personal trips. A proverbial prisoner of his own success.
This is mostly a non-item. Wynn doesn’t need a dollar in salary, travel subsidies, or anything else. It’s his company and he’ll continue to run it well regardless of whether his base salary is $4M or $2.5M. The change won’t save the casino any significant amount of money so who knows why they’re doing it. To project an aura of fiscal responsibility maybe? The stock jumped $10 yesterday so maybe investors like the fact that Steve is getting a pay cut.
Wynn is already quite a fiscally responsible company regardless of CEO salary savings. What is most impressive by them are two things. First, while Wynn does carry $7.34B in debt, $5.6B (page 70) of that debt is fixed-rate, and of the remaining floating rate debt, $753M (page 17) is hedged with swaps out until 2017. This leaves only 3.2% of its long term debt load unprotected. You can’t get much safer than that.
The other impressive feat Wynn accomplished is to secure a guaranteed maximum price for construction of the Wynn Palace in Macau through one of its subsidiaries, Palo Real Estate, to be completed by next year. I’m really not sure exactly how that works financially, getting a guaranteed maximum price from your own subsidiary. But it sounds impressive if convoluted. So far they are $1.4B into a $4.1B maximum project. That leaves $2.7B more until completion, and Wynn has more than that ($2.9B) just in cash on its balance sheet. Not to say that will spend it all on finishing up, but the jist of it is they can easily afford the project.
Wynn has put itself in a very interesting position for when Macau recovers, and I still believe the worst is ahead of us. Besides being completely safe in terms of interest rate troubles, Wynn could have a field day with foreign exchange earthquakes. This goes for the rest of Macau stocks as well, but especially Wynn, for the following reason.
From Wynn’s last 10-Q: