prev

WYNN BLOWOUT AND IT MAY NOT BE JUST MACAU

WYNN should report an all-around monster quarter.  Vegas may be the biggest surprise.

 

 

What shouldn’t surprise investors is that we are 11% above the Street for Q1 Wynn Macau EBITDA.  What may surprise is that we are high on the Street for Las Vegas EBITDA.  A combination of strong hold and big volumes may have done the trick in Vegas.

 

We estimate that WYNN will report 1Q2011 net revenue of $1,230MM and EBITDA of $357MM; 8% and 17% ahead of Street estimates. 

 

 

WYNN Macau

We project that Wynn & Encore Macau will report net revenue of $874MM and EBITDA of $292MM in 1Q2011, 4% and 11% ahead of Street, respectively

  • We estimate gross and net gaming revenues of $1,056MM and $819MM, respectively
    • VIP net win of $553MM
    • Assuming direct play of 11%, Rolling Chip of $29.5BN (up 46% YoY and 7% sequentially) and hold of 2.7%
    • Rebate rate of 80bps
  • Mass table win of $191MM
    • Table volume of $798MM and hold of 24%
  • Slot win of $74MM
    • Handle of $1.43BN and win% of 5.2%
  • Non-gaming revenue, net of promotional expenses of $55MM
  • Variable expenses of $462MM ($411MM of gaming taxes and $45MM of incremental junket commissions above the rebate)
  • $26MM of recorded expenses for non-gaming revenues
  • Fixed expenses of $94MM

 

WYNN Las Vegas

We estimate that Wynn Las Vegas will report $356MM of net revenues and $87MM of EBITDA, 6% and 18% above the Street, respectively.

  • We estimate net casino revenues of $172MM
    • Table win of $160MM; table drop up 20% YoY to $668MM and hold of 24%
    • Slot win of $45MM; volume up 10% YoY to $742MM and 6% hold
    • Discounts and other of 16% or $33MM
  • $239MM of non casino revenue and $55MM of promotional expenses
  • $53MM of SG&A and $5MM of doubtful accounts

 

Other stuff:

  • Corporate expense: $22MM
  • D&A: $101MM
  • Stock comp: $8MM
  • Net Interest expense: $58MM

Could The Ryan Budget Be The Most Economically Bullish Legislation of Our Lifetimes?

Conclusion:  Simply put, the Ryan budget dramatically reduces the size of the federal government over the long run and thus reallocates capital back to the private sector, which could be incredible bullish for economic growth in the United States.

 

The current budget debate in Washington is amongst the most heated and partisan we’ve seen since the beginning of the Obama administration.  On the conservative side of the equation is, of course, the Ryan budget, which was introduced two days ago by Representative Paul Ryan the Republican from Wisconsin.   Philosophically, the basis of the budget is simple; it both reduces taxes and dramatically reduces the size of the government over ten years, with a focus on restructuring the cost of healthcare.

 

The Congressional Budget Office, at the request of Representative Ryan, presented their analysis of his budget yesterday.   In the introductory section of the analysis, the CBO stated:

 

“To prevent debt from becoming unsupportable, policy makers will have to substantially restrain the growth of spending, raise revenues significantly above their historical share of GDP, or pursue some combination of those two approaches.”

 

In theory, the budget situation is actually that simple:  either raise taxes or cut costs, or both.  Politically, and practically of course, the solution is far from simple, but the outcome of the Ryan budget, albeit at the expense of restructuring healthcare, may provide some real long term economic advantages for the United States versus the fiscal status quo.

 

The key components of the Ryan budget are as follows: 

  • Healthcare – The Ryan budget would convert the current Medicare system to a system of premium support payments and would increase the age of eligibility of Medicare.  On Medicaid, the federal share of Medicaid would be converted to block grants to the states, which would grow with population and CPI-U.  The Ryan budget would repeal all components of the 2010 Patient Protection and Affordable Care Act (more commonly known as Obamacare). Finally, several limitations of punitive damages in medical malpractice would be implemented; 
  • Other spending – Under the Ryan budget, mandatory and discretionary spending, other than that for mandatory healthcare (outlined above) and social security, are cut from 12% of GDP in 2010 to 6% of GDP in 2022 (this is below pre-WW2 levels); and 
  • Revenue – Under the Ryan budget, federal government revenues grow from 15% of GDP in 2010 to 19% of GDP in 2028, and remain at that level thereafter.  For comparative purposes the long run average of federal government revenue as a percentage of GDP from 1960 – 2011 is 17.6%.   So, in essence tax receipts in Ryan’s proposed budget are slightly above the long run percentage of taxes as share of the U.S. economy and ~27% above current levels. 

Unfortunately the CBO analysis didn’t offer a comparison of the Obama budget versus the Ryan budget, but they did offer a comparison of the Ryan Budget versus their Extended-Baseline Scenario (normal scenario) and Alternative Fiscal Scenario (draconian scenario).  In the table below, we’ve also included the CBO’s most recent estimates of the Obama budget, albeit the ten year budget ends in 2021 and not 2022.  The clear take away from the ten year budget comparison below is that the Ryan budget effectively outpaces both the federal government’s current fiscal path and the proposed Obama budget in reducing the budget deficit over the next decade.

 

Could The Ryan Budget Be The Most Economically Bullish Legislation of Our Lifetimes? - 1

 

The longer term fiscal benefits of the Ryan budget are even more compelling according to the CBO.  By 2050, the federal government would be running a 4.25% budget surplus (as a percentage of GDP) under the Ryan plan versus -4% in the CBO’s normal scenario and -26% in the more draconian scenario.  

 

In evaluating the long term benefits of the Ryan budget from an economic perspective, we think three key factors are most relevant, which are as follows:

 

Long term structural debt – The most thorough analysis of the impact of long term debt is This Time is Different by Carmen Reinhart and Kenneth Rogoff.  The key take away from their analysis is that as sovereign debt balances accelerate and eventually reach the 90% debt-to-GDP level, which we have coined the Rubicon of Sovereign Debt, growth slows dramatically. 

 

In fact, their analysis of 2,317 observations has a statistically significant 352 observations at, or above, 90% debt as a percentage of GDP.  Collectively these observations show us that GDP growth averages at 1.7% beyond the Rubicon of Sovereign Debt, which is almost three standard deviations below the collective growth rates at lower debt levels.  The Ryan budget by 2050 has debt-as-percentage of GDP at 10% according to the CBO, while the CBO’s baseline and draconian scenario take debt-as-percentage of GDP to 90% and 344%, respectively.

 

Declining government spending – For starters, government spending is a large percentage of GDP (between 29% and 35% in recent years), so, in theory, cutting government spending dramatically could be a drag on the economy.  Further, and as the argument of Keynesians, higher levels of government spending or stimulus are required in periods of below average GDP growth.

 

To test the impact of declining government spending introduced by the Ryan budget, we analyzed real GDP change from 1960 to 2009, and year-over-year government spending changes in the same years.   Interestingly, in the five years with the slowest year-over-year growth in government spending, GDP in those years grew on average 4.74%.  Conversely, in the five years with the largest year-over-year change in government spending, GDP grew 1.10%.  The average of real GDP growth over the entire period was 3.2%.  

 

Now, admittedly, this is a somewhat simplistic analysis, which we will be refining further.  A key pushback is obviously that as GDP growth slows, certain entitlements naturally kick in, and vice versa.  Interestingly, if we look at one year out after the five most dramatic ramp ups in government spending, GDP growth does reaccelerate to 3.3% on average, which is just above the long run average.  While this is encouraging for Keynesians no doubt, it is still somewhat anemic growth given easy comparables.  So, while this analysis needs refinement, it does appear to lend credence to the idea that government spending does not have a comparable return to the same capital allocated to the private sector.

 

Long term low taxation levels - Under the Ryan budget, federal government revenues grow from 15% of GDP in 2010 to 19% of GDP in 2028, and remain at that level thereafter.  For comparative purposes, the long run average of federal government revenue as a percentage of GDP from 1960 – 2011 is 17.6%.   So, in essence, tax receipts in Ryan’s proposed budget are slightly above the long run percentage of taxes as share of the U.S. economy. While this may seem less conservative, in reality, it’s quite conservative when compared to the current alternatives. For example, by 2022 the CBO baseline estimate has government taxes at 21% of GDP, and President Obama’s budget has government revenues as a percentage of GDP at 19.3% by 2021, while Ryan has this statistic at 18.5% by 2022. 

 

So, the long run debate continues, are lower taxes better or worse for the economic growth?  We know where we stand on that, but if you don’t believe us, take the CBO’s word for it, which in their analysis of Representative Ryan’s budget wrote:

 

“To the extent that marginal tax rates on labor and capital income would be lower as a result, future output and income would be greater in the long term, all else being equal.”

 

To many, the Ryan budget is scary.  It dramatically attacks the long term expenditures and structural deficits of the U.S. federal governments by cutting costs to unprecedented levels.  The reality is, though, based on the fiscal history of the modern United States, this plan could be wildly bullish for the U.S. economy in the long run as it dramatically allocates capital away from the government and into private hands where it will potentially be much more efficiently allocated.

 

Daryl G. Jones

Managing Director 


INITIAL CLAIMS FALL 6K, REMAIN SLIGHTLY BELOW 400K

Initial Claims Fall 6k (10k net of revision)

The headline initial claims number fell 6k WoW to 382k (10k after a 4k upward revision to last week’s data).  Rolling claims fell 6k to 389k. On a non-seasonally-adjusted basis, reported claims fell 4k WoW. 

 

We have been looking for claims in the 375-400k range as the level that can begin to bring unemployment down.  If this level is held, we expect to see unemployment improve. We consider unemployment to be ~200 bps higher than the headline rate due to decreases in the labor force participation rate. In other words, if the labor force participation rate were at the long-term average level of the last decade, unemployment rate would be 10.8% rather than 8.8%. So when we say that claims of 375-400k will start to bring down the unemployment rate, we are actually referring to the 10.8% actual rate.

 

Our healthcare team has done substantial work on unemployment by age, and we include one of their charts below.  The bottom line is that most of the improvement in unemployment has gone to the 55-64 year old demographic and the 20-34 demographic, while the middle aged demographic has yet to see employment growth. 

 

 INITIAL CLAIMS FALL 6K, REMAIN SLIGHTLY BELOW 400K - rolling

 

INITIAL CLAIMS FALL 6K, REMAIN SLIGHTLY BELOW 400K - reported

 

INITIAL CLAIMS FALL 6K, REMAIN SLIGHTLY BELOW 400K - nsa

 

INITIAL CLAIMS FALL 6K, REMAIN SLIGHTLY BELOW 400K - Employment by Age

 

One of our astute clients pointed out the relationship between the S&P and initial claims shown below.  We show the two series in the following chart, with initial claims inverted on the left axis.

 

INITIAL CLAIMS FALL 6K, REMAIN SLIGHTLY BELOW 400K - sp

 

Yield Curve Widens Slightly 

We chart the 2-10 spread as a proxy for NIM. Thus far the spread in 1Q is tracking 35 bps wider than 4Q.  The current level of 271 bps is slightly wider than last week (266 bps).

 

INITIAL CLAIMS FALL 6K, REMAIN SLIGHTLY BELOW 400K - spreads

 

INITIAL CLAIMS FALL 6K, REMAIN SLIGHTLY BELOW 400K - spreads QoQ

 

Financial Subsector Performance

The table below shows the stock performance of each Financial subsector over four durations. We have adjusted our durations to show a different snapshot than we were previously.

 

INITIAL CLAIMS FALL 6K, REMAIN SLIGHTLY BELOW 400K - perf

 

 

Joshua Steiner, CFA

 

Allison Kaptur


real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

THE M3: SITES 5 & 6; CHING MING TOURISTS; MGM IPO; GRAND WALDO MALL; SMOKING BILL; FUEL SURCHARGE

The Macau Metro Monitor, April 7, 2011



SANDS NEEDS 7,000 WORKERS FOR PARCELS FIVE AND SIX macaubusiness.com

Edward Tracy, Sands China’s president and COO, says the company will need 7,000 new workers to run Sites 5 & 6.

 

FEWER TOURISTS ON CHING MING FESTIVAL HOLIDAYS macaubusiness.com

According to official data, 304,000 tourists entered Macau over the Ching Ming festival holidays (April 3 to April 5), representing a 5.61% YoY decline.

 

MGM IPO DEADLINE UNCONFIRMED Macau Daily Times

“We were surprised to read the recent reports, as we don’t have any new information regarding the listing or deadlines. We are still waiting [for a decision],” a MGM’s spokesperson said.

 

FIRST OUTLET MALL TO OPEN AT GRAND WALDO Macau Daily Times

Grand Waldo will be opening Macau's first outlet mall in 3Q.  The Cotai resort said it will be the first casino/entertainment resort in Macau specifically targeting Taiwanese tourists, particularly mid-level consumers.  According to the major shareholder, Get Nice Holdings, a HKD 200MM investment will be required for the redevelopment of Grand Waldo. Get Nice added that intensified competition in the VIP market has shifted Grand Waldo's focus to families/young tourists.

 

Get Nice also mentioned the possibility of building high-end serviced apartments which can be built and sold on a strata-title basis, as part of the Grand Waldo resort.  Grand Waldo sits on freely transferable long leasehold land, unlike other major casino sites that were Government granted for gaming development and cannot be sold forward.

 

SMOKING BAN BILL TO BE ENACTED IN JANUARY 2012 Macau Daily Times

President of the Legislative Assembly's second standing committee, Chan Chak Mo, said he is confident the smoking ban bill will get final approval during April and that it will be effective starting in January 2012.  This means, one year later in January 2013, casinos will be required to set aside dedicated smoking areas of up to 50% of their total public area.  The Government will enforce the law by examining the casinos every three years.

 

FUEL SURCHARGES RAISED ON FLIGHTS FROM MAINLAND TO HK, MACAU People's Daily

According to Ctrip.com, Air China, China Southern Airlines and other major Chinese airlines have raised the fuel surcharge on flights between Chinese mainland and the HK/MSAR.  Air China and China Southern increased surcharges on flights from the mainland to Hong Kong from 140 yuan to 164 yuan on April 1. 

 

Previously, several airlines, including Dragonair, Cathay Pacific Airways and Shenzhen Airlines had already raised fuel surcharges on flights between Chinese mainland and Hong Kong as well as Macau.


TALES OF THE TAPE: RT, EAT, PNRA, YUM, RUTH

Notable news items and price action from the past twenty-four hours.

  • RT reported a disastrous quarter AMC.  The stock traded down on accelerating volume during yesterday’s session is trading at $11.80 pre-market from yesterday’s close of $13.37.  See my note, published earlier this morning, for more details.  Most of the issues are RT specific but the group could trade lower today.  I like EAT on any RT-related weakness.
  • PNRA declined 3.7% on accelerating volume. OTR Global has a “Mixed” read on Panera Bread, deteriorating from “Positive” in December.
  • Japanese restaurants in India scrambled Wednesday to find replacement ingredients after the government imposed a blanket ban on food imports from Japan over radiation fears.
  • From this month KFC will use high oleic rapeseed oil at its 800 outlets in UK and Ireland, at an estimated cost of £1m a year. The move will cut levels of saturated fat in its chicken by 25 per cent, according to the company.
  • RUTH traded up nicely yesterday on accelerating volume – Hedgeye remains positive.
  • YUM traded higher on accelerating volume.

 

TALES OF THE TAPE: RT, EAT, PNRA, YUM, RUTH - stocks 47

 

Howard Penney

Managing Director

 


THE HEDGEYE DAILY OUTLOOK

THE HEDGEYE DAILY OUTLOOK

 

TODAY’S S&P 500 SET-UP - April 7, 2011

 

Dear Ben: Call Glen because a hawkish policy works! - from Bloomberg news “Australia Adds 37,800 Jobs in March, Sending Currency to Highest on Record.”  As we look at today’s set up for the S&P 500, the range is 17 points or -0.79% downside to 1325 and 0.48% upside to 1342.

 

SECTOR AND GLOBAL PERFORMANCE

 

We are on day 4 of perfect with 9 of 9 sectors positive on TRADE and 9 of 9 sectors positive on TREND.    

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

THE HEDGEYE DAILY OUTLOOK - BEST PERFORMING GLOBAL

 

THE HEDGEYE DAILY OUTLOOK - WORST PERFORMING GLOBAL

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 420 (+95)  
  • VOLUME: NYSE 885.55 (+6.61%)
  • VIX:  16.90 -2.87% YTD PERFORMANCE: -4.79%
  • SPX PUT/CALL RATIO: 1.69 from 2.15 (-21.10%)

CREDIT/ECONOMIC MARKET LOOK:

 

Treasury 10-year yields little changed at 3.56%, adding 10 bps this week on speculation Fed may raise rates earlier than expected; bonds started day weaker. 

  • TED SPREAD: 24.70 +1.014 (4.282%)
  • 3-MONTH T-BILL YIELD: 0.06% -0.01%
  • 10-Year: 3.56 from 3.50
  • YIELD CURVE: 1.49 from 1.69

MACRO DATA POINTS:

  • 8:20 a.m.: Fed’s Lacker speaks in Roanoke
  • 8:30 a.m.: Jobless claims, est. 385k, prior 388k
  • 8:30 a.m.: Net export sales
  • 9:45 a.m.: Bloomberg Consumer Comfort, prior (-46.9)
  • 10:30 a.m.: EIA Natural Gas, est. (-52), prior 12
  • 3 p.m.: Consumer Credit, est. $4.6b 

WHAT TO WATCH:

  • Citigroup Inc. (C), the third-largest U.S. bank by assets, is seeking to expand its commodity investment-product team by a third over the next two years to tap growing demand as copper, gold and cotton rise to records. 
  • Energy companies prepare to fight Alberta over its plans to revoke their oil-sands leases - Globe and Mail
  • Bullish sentiment among individual investors rose to 43.6% this week, highest since week of Feb. 17
  • Portugal rescue package is likely to be €75B-€90B -- Dow Jones, citing sources
  • GE to Build Biggest U.S. Solar Panel Plant, N.Y. Times Reports
  • Cleveland Fed President Sandra Pianalto said that the continuation of the Fed’s current monetary policy is warranted and that she favors a public inflation target.

 

COMMODITY/GROWTH EXPECTATION

 

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

COMMODITY HEADLINES FROM BLOOMBERG:

  • World Food Prices Seen Rebounding to Record After Grains Rally, UN Says
  • Cotton Surges by Exchange Limit on Concern U.S. Stockpiles Might Shrink
  • Copper Gains for Third Day as Rio Fuels Speculation on China Demand's Pace
  • Brent Crude Oil Futures Halt Five-Day Advance in London on Demand Concern
  • Wheat Advances as Dry Weather in U.S. Great Plains May Reduce Production
  • Gold, Near Record, May Advance on Concern About European Debts, Inflation
  • Coffee Rises as Export Shipments May Start to Slow; Sugar Prices Advance
  • Corn Seen Outperforming Wheat, Soybeans, Cotton as China Doubles Imports
  • Diversified Commodity ETPs Got Record $5.2 Billion Inflows in 1st Quarter
  • Shipping Rates for Coal Cargoes to Japan Seen Rising 55%: Freight Markets
  • Gasoline Demand at Eight-Year Low May Threaten 2011 Rally: Energy Markets
  • Ethanol Makers Say Libya War Boosts Profits, Concern U.S. Subsidies to End

CURRENCIES

  • British pound traded near two-week high vs dollar before BoE’s interest-rate announcement

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

 

EUROPEAN MARKETS

  • Europe rises as Portugal seeks bailout and before ECB is forecast to raise interest rates 25bp.
  • Germany Feb Industrial output +1.6% m/m vs consensus +0.50% and prior revised to +2.00% from +1.80%

 

THE HEDGEYE DAILY OUTLOOK - BEST PERFORMING EURO

 

THE HEDGEYE DAILY OUTLOOK - WORST PERFORMING EURO

 

 

ASIA PACIFIC MARKTES:

  • Asian stocks are little changed as Bank of Japan keeps credit program, asset-purchase fund unchanged.
  • Australian Job Growth in March Sends Currency to Record High
  • China benchmark index reaches 5-month high
  • Japan was flat after two days of losses.
  • Japan March foreign reserves $1.11T, +$24.54B m/m. Overnight call rate left unchanged at 0-0.1%. Australia March employment +37,800 vs consensus +22K. March unemployment 4.9% vs cons 5.0%.

 

THE HEDGEYE DAILY OUTLOOK - BEST PERFORMING ASIA

 

THE HEDGEYE DAILY OUTLOOK - WORST PERFORMING ASIA

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels 47

 

 

Howard Penney

Managing Director


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.57%
next