Chanos Is Short Wynn, Says Stock Should Be Trading in the $40s
Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.
Kynikos Associates founder Jim Chanos, one of Wall Street's most noted short sellers, is bearish on Wynn Resorts (NASDAQ:WYNN), citing regulatory headwinds in Macau.
Kynikos Associates founder Jim Chanos, seen in an interview above, is short Wynn stock. He says there's concession risk and that the stock is overvalued. (Image: CNBC)
In an interview today with CNBC, Chanos said his firm is short a US-based Macau casino operator and that name is Wynn Resorts. His revelation comes on a day in which Wynn stock is off 3.34 percent on volume that's already double the daily average, extending its one-week loss to 18 percent.
For years we've said that people are ignoring (that) the concessions are at risk that expire next year. The law expires June of next year and has to be rewritten. We think that the very lucrative Macao concession is going to be at best cut back, and at worse be cut back dramatically," said Chanos in the interview.
So bearish on the Encore operator is Chanos that he believes the stock should be trading in the $40s. It currently resides just over $80 and has rarely traded below $50 since its initial public offering (IPO) in September 2010.
Familiar Refrain from Chanos
Fifteen months ago, Chanos spoke bearishly about Las Vegas Sands (NYSE:LVS) and Wynn, saying the operators face concession renewal risk in Macau due to deteriorating US/China relations. Licenses for all six Macau concessionaires expire in June 2022.
While permit renewal risk is an overhang, investing in Macau gaming equities took a treacherous turn for the worse last week. That's when officials in the special administrative region (SAR) made clear they could take a more active role in overseeing the local gaming industry. That could include equity stakes in the operators, mandating how the companies allocate capital, significant alterations in the retendering process, and perhaps shorter license terms.
Shares of all six concessionaires were drubbed last week, as global investors fretted that Macau casino operators are becoming the latest targets in widespread regulatory crackdown orchestrated by the Chinese Communist Party (CCP). The CCP previously punished online tutoring companies and e-commerce firms, among others.
Chanos has long been bearish on China, citing, among other factors, regulatory risk, bloated debt burdens, and corporate fraud at some companies. Kynikos hit a home run shorting Luckin Coffee after the so-called "Starbucks of China" was caught falsifying sales data, leading to an epic meltdown in the stock.
Wynn Stock not Cheap
Earlier this year, some members of the investment community highlighted Wynn as a value play on the global economic reopening. That thesis is suffering amid an increase in coronavirus cases in mainland China, which are prompting authorities to keep in place strict travel controls.
Combine that with last week's regulatory commotion, and some analysts are souring on Wynn stock. Add to that, Chanos doesn't view the shares as cheap, despite the recent weakness. In fact, he says that when factoring in $5 billion in debt, it's pricey.
"It's one of the most expensive casino stocks out there," he told CNBC.
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