CONFIDENTIAL - Value Line Sample.pdf · august 2006 value line select tm 3 select tm value line performance(a): 2 technical(b): 2 safety(c): 3 recent price: $76 2009-2011 price forecast:

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WYNN RESORTS, LIMITED

VALUE LINESELEC TTM

VALUE LINE PUBLISHING, INC .220 EAST 42ND STREET

NEW YORK NY 10017-5891TELEPHONE: 212-907-1500

www.va lue l i ne . com

August 2006

A U G U S T 2 0 0 6 V A L U E L I N E S E L E C T T M 3

SE

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VALU

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PERFORMANCE(A): 2

TECHNICAL(B): 2

SAFETY(C): 3

RECENT PRICE: $76

2009-2011 PRICEFORECAST: $90-$135

Published by VALUE LINE PUBLISHING, INC. 220 East 42nd Street, New York, NY 10017-5891.For the confidential use of subscribers. Reprint by written permission only.Copyright 2006 by Value Line Publishing, Inc. ® Reg. TM—Value Line, Inc.

Factual material is obtained from sources believed to be reliable, but the publisher is not responsiblefor any errors or omissions contained herein. © 2006 Value Line Publishing, Inc. RIGHTS OF REPRO-DUCTION AND DISTRIBUTION ARE RESERVED TO THE PUBLISHER. No part of this publicationmay be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic,mechanical, photocopying or otherwise, without first obtaining the written permission of the copy-right owner. One or more investment companies or investment advisory accounts for which ValueLine, Inc. acts as investment adviser, and officers, directors or employees of Value Line, Inc. or ValueLine Publishing, Inc. may own securities that are reviewed or recommended in this service.

2002 2003 2004 2005 2006 2007 2008 2009 2010 20114

40

80

120

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12

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Price RangeRecent PriceTarget Price RangeRelative Price Strength

400

28

200280

Footnotes are on Page 19


INDUSTRY: Hotel/Gaming

EXCHANGE: NDQ

TICKER SYMBOL: WYNN

OPTIONS: Yes

FINANCIAL STRENGTH: B+

ACTUAL E.P.S. FY‘05: d$0.02

ESTIMATED E.P.S. FY‘06: $0.45

ESTIMATED E.P.S. FY‘07: $2.25

CURRENT P/E RATIO: NMF

RELATIVE P/E: NMF

DIVIDEND: Nil

SHARES OUTSTANDING:100.9 million

INSIDER HOLDINGS: 51.1%

MARKET CAP:$7.7 billion (Large Cap)

ADDRESS:3131 Las Vegas Boulevard SouthLas Vegas, NV 89109

TELEPHONE: (702) 770-7555

WEB SITE: www.wynnresorts.com

REPORT AS OF: August 21, 2006

High: 14.4 28.6 73.0 76.5 80.2Low: 10.8 12.8 27.5 42.1 52.4

© 2006, Value Line Publishing, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided withoutwarranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly forsubscriber's own, non-commercial, internal use. No part of it may be reproduced, stored or transmitted in any printed, electronic or other form,or used for generating or marketing any printed or electronic publication, service or product.

4 V A L U E L I N E S E L E C T T M A U G U S T 2 0 0 6


Long-term subscribers to Select are no doubt already aware ofthe investment thesis surrounding casino operators, particu-larly in the gambling capital of the world, Las Vegas. In thepast, we introduced our readers to MGM Mirage, which isnow the largest casino operator in the Nevada resort town,following a series of mergers and acquisitions. Our subscrib-ers profited handsomely from that holding, even though wefollowed the stock for only about half a year.

Las Vegas continues to be the destination for gamblers andslot machine players, due in large part to the significant num-ber of properties located within a relatively short distance ofeach other, allowing visitors to jump from one location toanother with relative ease. Increasingly, though, the resort townis becoming a destination not just for gamblers, but also forthose seeking an escape—be that for a short weekend stay or alonger vacation. The city’s location—close to the Grand Can-yon, Lake Mead, and other outdoor destinations—makes it aconvenient base for visiting those sites, and its proximity tolarge portions of the West Coast populace (not to mention areasonable distance by air to the East Coast), has led many ofthe casinos to add family friendly attractions, such as Broad-way shows and amusement and water parks, to its list of amen-ities. The city is also becoming a major destination locationfor conventions, due not only to its location and attractions,but also because of the number of large facilities that canhandle big events.

During the first six months of 2006, the Las Vegas Conven-tion and Visitors Authority reported that 19.3 million people

Las Vegascontinues to be agambling mecca,

for numerousreasons



visited the city, a level that was just slightly above the year-earlier figure. This growth, however small, is perhaps surpris-ing, with rising interest rates and skyrocketing gasoline pricesleading some tourist destinations to report declining traffic.About 20% of the above number visited in conjunction witha convention. And just over half arrived by air. According tosurvey results compiled by GLS Research for the Las VegasConvention and Visitors Authority, the average visitor last yearspent 4.5 days and 3.5 nights in the city, and spent just over$500 during their stay on food and drink, transportation, shop-ping, and shows and sightseeing. Most—some 86%—said theygambled while in Vegas, claiming to have budgeted an aver-age of just over $625 each for that pastime.

Clearly, many visitors to Las Vegas come to town with themeans, as well as the intention, to spend money in their ef-forts to relax and have fun. The casinos along the Strip—manyof which were built in the last decade—are only too happy tohelp their guests find ways to find this fun—and to spendtheir money. Each new property that opens tries to outdo thosethat came before it. There are pirate ships, exploding volca-noes, roller coasters on the tops of casinos, Venetian-like ca-nals (complete with gondoliers), replicas of famous structures(like the Eiffel Tower), dancing water fountains, and a myriadof other ‘hooks’ to attract the attention of new visitors. Somecasinos target specific niches of the market—like ‘high rollers’(or free-spending gamblers)—while others offer something foralmost everyone.

Although investing in a casino stock is always a gamble (par-don the pun), we return to that sector this month, with a rec-ommendation of a fairly new stock, but a company with deepexperience in the business at the controls. Wynn Resorts,

Nearly twentymillion visitors

have poured intotown in the first

six months of2006, most with

money in theirpockets, looking

for places tospend it



Wynn Las Vegasis one of

the newestproperties on the

Strip, and itsgoal is to attract

the higher-endgamblers and

vacationers

Limited is that company, and, although it has only been publicsince late 2002, the top management of the organization hasbeen responsible for much of the building that has occurred inLas Vegas over the past several decades. Steve Wynn, the com-pany’s Chairman and C.E.O. (and namesake), has been build-ing lavish casinos for roughly four decades, and was the forcebehind The Mirage, Treasure Island, and the ultra-luxuriousBellagio, among other properties. After selling his interest inthe Bellagio and other casinos a half-decade or so ago, Mr.Wynn removed himself from the casino operating business,due to a non-compete agreement that was part of the sale (andwhich has now, obviously, expired).

But that time was spent planning his next upscale property,which was unveiled in April 2005, on the Las Vegas Strip(which is the main thoroughfare that fronts most of the newercasinos). Called Wynn Las Vegas, the mammoth, 45-storyproperty (located where the old Desert Inn stood) features2,674 rooms and suites, another 42 private villas, an 111,000-square-foot casino, 22 food and beverage shops, 223,000 squarefeet of meeting and convention space, 76,000 square feet ofretail space, and two showrooms. The luxurious facility is de-signed to cater specifically to the high-end visitor and/or play-er, and to this end the retail shops feature exclusive designershops—such as Louis Vuitton, Christian Dior, Chanel, andManolo Blahnik—as well as a luxury car dealership with Fer-rari and Maserati automobiles. The average room rate in itshotel since opening has been $274 per night, while its occu-pancy rate has been an enviable 92.1%. By comparison, theaverages on the Strip are $103 and 89.2%, respectively.

The fact that Wynn Las Vegas enjoys these above-averagecomparisons is no accident. Rather than build a facility for



But a newgambling

destination isbeckoning in

Southeast Asia

the masses, Steve Wynn and his company set out to build adestination resort for the higher-end clientele that are at-tracted to more luxurious, opulent surroundings. Six of thefood outlets are fine dining restaurants. The retail outlets, asoutlined above, also lend an air of exclusivity to the proper-ty. And, as a consequence, the casino enjoys higher tableminimums, larger bets by the players, and, hopefully, higherrevenues as a result. But this is a double-edged sword: Inorder to provide the service and surroundings that the hotelstrives for, costs are higher than at the typical Strip casino.This, in part, caused second-quarter results to come in a bitbelow what most investors had expected. According to man-agement, profits were also hurt by a change in the house’sluck in June. In an unusual twist on the typical Las Vegasstory, the players got to keep more of the casino’s moneythan normal, pushing profits lower. This, too, is the nega-tive side of attracting high-limit gamblers: should their luckturn favorable, the house feels the impact more quickly thanother casinos—with lower average bets—might.

The Lure Of Macau

But Las Vegas is only part of the story that has us excitedabout the potential for Wynn Resorts. Next month, the com-pany will unlock the doors on its brand new property in Macau,which will be known as Wynn Macau. Macau has long been agambling destination, located about a one-hour ferry ridesouthwest of Hong Kong. Until recently, Macau was underPortuguese control, as it had been for several centuries. Dur-ing the last several decades, gambling was permitted only incasinos controlled by a single concessionaire. At the close of1999, Macau was turned over to the Chinese government,



CurrentlyMacau attracts

about half theannual visitorsas Las Vegas—

but that is aboutto change in a

major way

and the new authorities have expressed strong interest intoturning the site into a major tourist destination, and decidedthat the addition of new casinos would serve this purpose.Wynn Resorts, MGM Mirage, and The Las Vegas Sands havebeen granted new concessions to construct properties in thatjurisdiction.

Macau appears to have the potential to become a popular andprofitable location for Wynn (and others). Located within athree-hour drive of roughly 100 million people, and a three-hour flight away from up to one billion others, the casinoproperties offer a new and exciting getaway for a staggeringnumber of people. Today, many of the region’s more affluentgamblers travel to Las Vegas, so they will already be accus-tomed to the different sort of casino that these American com-panies will introduce. Currently, most of the Macau casinosare small facilities located in existing hotels. Most tourists—roughly two out of three in recent years—do not even spendthe night, as they typically do in Las Vegas.

According to statistics published by the Macau Statistics andCensus Service Monthly Bulletin of Statistics (as cited by WynnResorts), the small jurisdiction had nearly 19 million visitorsin 2005, a level which is just below the tourist count in LasVegas in the first six months of this year. This same source alsoreported total gaming revenue in Macau in 2005 of $5.6 bil-lion. Through the first half of 2006, Las Vegas took in about$4.1 billion in gaming revenue. So, despite its relatively smallsize and its limited number of large casinos, Macau receives,on average, about half the tourists and gaming monies as LasVegas. Once the new casinos open their doors, these totals arelikely to skyrocket—yet there will only be a limited numberof new facilities to absorb the influx.



Anotherpropertyis under

construction onthe Strip inLas Vegas,

as well

In the future, there will likely be more casinos added in Macau.Wynn is already looked at an additional site, and its compet-itors likely are, as well. But what the casino operators havediscovered in Las Vegas is that, as more casinos open for busi-ness, the tourist count just keeps increasing. This will likely bethe scenario in Macau, as well. In 2005, roughly 90% of thatarea’s tourists came from Hong Kong, mainland China, andTaiwan. As the popularity of the gambling destination increas-es, so should the stream of tourists from that part of the globe.

To that end, Wynn Macau is being opened in phases, with thefirst phase—600 hotel rooms, 100,000 square feet of casinospace, and retail and restaurant facilities—scheduled to openin early September. The second phase will add another 136,000square feet of casino space, and is currently scheduled to becompleted a year from now. The total cost of this facility isestimated to be about $1.2 billion—and the company saysthat the first phase was completed about a month early, andon budget.

Further Growth In Las Vegas, As Well

After opening Wynn Las Vegas, the company decided to addon to the property. Believing the demand to be strong enoughto support additional rooms and casino space, plans were un-veiled to open another facility adjacent to Wynn Las Vegas, tobe called Encore at Wynn Las Vegas. Although technically aseparate structure, the new addition will be almost an extensionof the existing resort, to allow its guests easy access between thetwo. Encore will include just over 1,900 guest rooms and 144suites, along with another 44,000 square feet of casino space, aswell as additional meeting and retail space. The cost of the ex-


1 0 V A L U E L I N E S E L E C T T M A U G U S T 2 0 0 6

We believe thecompany’s start-

up losses areabout to change

to profits

pansion is estimated at $1.74 billion, although this does notinclude the price of the land, which was part of the initial $2.74billion tab for the first property. Present plans call for Encore tobe ready for its first guests in the second half of 2008.

Recent Results

Earlier in August, Wynn Resorts released its second-quarterresults, which showed revenues increasing 36%. But the LasVegas property was only open for about two months of theyear-earlier quarter, which makes comparisons almost mean-ingless. The same can be said about the bottom line, whichhas shown losses in most quarters since the company’s IPO in2002. This is understandable, since Wynn was unable to gen-erate any meaningful revenues until the doors to the casinowere thrown open for the first time on April 28, 2005. Sincethat time, costs have run high, due in large part to the proper-ty’s efforts to portray itself as a high-end, ultra-luxurious, first-class operation. We suspect that, as time goes on, manage-ment will find ways to maintain this image, while also trimmingcosts. However, a similar scenario may unfold as its Macauproperty opens this fall, followed by the debut of the secondphase of that site in a year, and then followed a year later bythe opening of Encore in Las Vegas. The company has reachedan inflection point, though, and we expect it to begin postingprofits in each quarter going forward.

When Wynn released its results, they were met with a degreeof scorn by some Wall Street observers that follow this rela-tively under-followed company. They pointed out the higherlevel of expenses, and the lower-than-expected profits. Man-agement explained (as we have outlined) that costs were, in-

A U G U S T 2 0 0 6 V A L U E L I N E S E L E C T T M 1 1


As are mostcasino operators,

Wynn carries asubstantial

amount of debt

deed, higher than planned, and profits were hurt somewhatby a lowering of ‘table hold’ (which is industry jargon for thepercentage of all bets that the house keeps) during the monthof June. While the casino’s focus on high-rollers helps it rackup profits when the table holds increase, when it drops, itquickly pinches the bottom line. Management revealed thatthis percentage shot back up in July—but this was too late tohelp June-quarter results. Despite this scorn by some, howev-er, investors seemed able to look past the short-run unluckystreak, and focus more on the looming Macau opening. In-stead of falling further, the stock rallied, and has been strongsince the earnings release.

At the end of the June quarter, Wynn Resorts reported totallong-term debt of about $2.3 billion. This is about 9% abovethe level at the start of the year, and the increase is due to theongoing construction activities for both Macau and Encore.We would expect debt levels to remain elevated during thisperiod of heavy construction—which is now scheduled to lastat least until 2008 or 2009. Investors can gain a measure ofreassurance from the company’s ability to generate strong cashflow, which should allow it to service its debt with little diffi-culty, as long as business remains strong.

Future Expectations

Wynn’s short history as an actual operating company makesfuture projections a bit more tenuous than for enterprises witha longer track record. This task is made particularly difficultwith the fact that the current single casino will be joined byother (or expansions) in each year for the next several years.We expect costs to be higher than normal at each new loca-



Currently,higher-than-

planned costs atthe new Vegas

property areholding backprofits there

tion as it first opens, and, thus, operating and net profit mar-gins will be far from normal for some time.

With that caveat in mind, we are currently projecting annualrevenue gains over the next three to five years that average about40%. But this growth will likely be front-end weighted (in 2006we target top-line growth of 80%), and comes off of a smallbase—Wynn Las Vegas was only open for about eight monthsof 2005, the base year for our calculations. Still, this is impres-sive growth, and our longer-term projections may prove con-servative, as we cannot now know what additional expansionsor even acquisitions might be added between now and 2010.

Although costs are higher than planned in Wynn Las Vegasnow, we expect management to quickly rein these in, and whatis learned there will be more easily implemented in the newerfacilities as they open. Consequently, we think the new loca-tions will hurt margins to a lesser extent than the single casinotoday, and we thus project a steady increase in margins andprofits as time passes. At present, we look for bottom-linegrowth over the next few years that should quickly draw theattention of investors. This, in turn, will likely push the shareprice higher, rewarding investors.

Risks

The economy is probably the biggest risk to a casino operator.Gambling funds are, typically, discretionary spending, andmost people would likely trim—or eliminate—much of thisform of entertainment if the economic picture sours. Leisuretravel could also be negatively affected, which would hurt otherareas of its business, such as restaurants and shows, as well as



its retail shops. Wynn will now be exposed to the health of theglobal economy to a much larger extent than before, and adownturn in the Asia-Pacific region could have a much greatimpact on it than on other casino operators who are eithernot in that locale, or are better diversified.

Global pandemics—such as SARS or Avian Flu—could alsolead to a downturn in travel and tourism. While these partic-ular problems could hurt the Vegas properties, they are morelikely to hurt the fledgling business in Macau. Terrorism, too,is a great concern—especially now that Wynn is operatingbeyond our borders. Following the terrorist attacks in 2001,Las Vegas was nearly a ghost town the following weekend, andtourism only gradually picked up after that. The same couldhappen again, if customers were afraid to fly or visit publicplaces, such as casinos.

Competition in the casino business can be both a blessing anda curse. In Las Vegas, the addition of new properties has led toan explosion of tourism. The same is the hoped-for result inMacau. But the casino operators must also split the pie intosmaller pieces when their competitors grab some of their busi-ness. Although these operators cannot readily change the luckof the players at the gambling tables, they can discount rooms,offer special deals, or better attract tour operators and the largenumbers of people that they bring to town.

Summary

Although Wynn Resorts, Limited is a fairly new company—its sole casino has been in business for just over a year now—it has a management team that is steeped in experience and

The economy,pandemics—

such as SARSor Avian Flu,

terrorism, andcompetition are

major riskswith owning

this equity



expertise. Steve Wynn, the Chairman and C.E.O., has been inthe business for over 40 years, and his management team boastsan average of 25 years under its collective belts. After build-ing—and selling—many well-known properties in the past,Wynn unveiled his newest luxury property last April, and al-ready the hotel is enjoying above-average room and occupan-cy rates. Now the company is taking this knowledge and suc-cess, and putting it to the test in Macau, located just southwestof heavily populated Hong Kong, and just a short distancefrom the significantly more populated mainland China. Al-though long a gambling destination, the new government ofMacau decided to make the area an even bigger tourist mag-net, and issued concessions to three new casino operators, allwith ties to the U.S. and to Las Vegas. Wynn Resorts is aboutto unveil its first (of possibly at least two) casinos there inearly September, and the expectations of success are runningrampant. Currently, Macau draws about half the number oftourists as Las Vegas, but this will undoubtedly change as thenew gambling meccas open their doors. Wynn is also plan-ning an expansion to its current property in Las Vegas, whichshould offer even more upside in the future. We look for strongresults from each of the new properties, and believe Wynn canonce again build a successful empire with the properties nowin the works. Although our current three- to five-year pricetarget calls for only about average appreciation potential, webelieve the shares are primed to advance more quickly in thenear term, as more investors learn of the potential in Macau.We do, however, believe the shares could be volatile, especial-ly as news reports and rumors swirl surrounding the openingof the new Wynn Macau casino. Thus, we recommend inves-tors employ a stop-loss limit of about $57, to protect on thedownside.

Wynn is a fairlynew company,

but is headed bya management

team that is deepin experience,

and appears tohave the

company on thetrack to

explodinggrowth

possibilities



All numbers, except percentages and per-share data, are in millions. Numbers in bold italics areValue Line estimates; all estimates except percentages and per-share figures are rounded to thenearest whole number. Footnotes are on page 19.

FINANCIAL STATEMENTS

INCOME STATEMENT DATA(D)

2005 2006 2007 2008 2009 2010

Net Revenues 722.0 1300 2000 2650 3350 4000

Cost of Goods 412.4 720 1060 1378 1675 1920

Gross Profit 309.6 580 940 1272 1675 2080

Operating Expenses 135.2 272 400 517 670 780

Operating Income 174.4 308 540 755 1005 1300

Depreciation 103.3 165 200 275 350 425

Interest Expense 102.7 150 145 140 135 130

Non-operating Income 35.1 55 61 70 76 83

Pre-tax Income 3.4 48 256 410 596 828

Income Taxes 0.0 3 26 61 119 207

Effective Tax Rate 0.00 5.00 10.00 15.00 20.00 25.00

Minority Interest 0.0 0 0 0 0 0

Equity Income 0.0 0 0 0 0 0

Preferred Dividends 0.0 0 0 0 0 0

Net Income 3.4 45 230 349 477 621

Diluted Shares 98.3 100 102 104 106 108

Earnings per Share $(0.02) $0.45 $2.25 $3.35 $4.50 $5.75

PERCENTAGE ANALYSIS (D)

2005 2006 2007 2008 2009 2010

Gross Margin 42.9% 44.6% 47.0% 48.0% 50.0% 52.0%

Adv. as % of Net Revenues 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%

Operating Margin 24.2% 23.7% 27.0% 28.5% 30.0% 32.5%

Pretax Margin 0.5% 3.7% 12.8% 15.5% 17.8% 20.7%

Net Margin 0.5% 3.4% 11.5% 13.2% 14.2% 15.5%





FLOW OF FUNDS DATA(D)

2005 2006 2007 2008 2009 2010

Cash Flow 109 210 430 624 827 1046

Debt Financing 627 460 0 0 0 0

Pfd Equity Financing 0 0 0 0 0 0

Com. Equity Financing 1 7 10 15 20 30

Other 530 0 0 0 0 0

Total Funds In 1268 677 440 639 847 1076

Capital Spending 877 400 400 400 400 400

Other Investments 44 0 0 0 0 0

Dividends Paid 0 0 0 0 0 0

Debt Retired 131 50 125 125 125 125

Pfd Equity Retired 0 0 0 0 0 0

Com. Equity Retired 0 0 0 0 0 0

Total Funds Out 1052 450 525 525 525 525

Yearend Working Cap’l 497 724 639 753 1074 1625

AVG. ANNUAL RATES OF GROWTH(2005 to 2010) (D)

Net Revenues 40.0%

Gross Profit 45.0%

Operating Income 50.0%

Earnings per share NMF

Book Value per share 15.0%





CAPITALIZATION & RETURNS ON CAPITAL(D)

2005 2006 2007 2008 2009 2010

Long Term Debt 2090.8 2500 2375 2250 2125 2000

Stockholders Equity 1562.9 1625 1865 2230 2725 3375

Return on Total Cap’l 1.5% 2.8% 12.3% 15.6% 17.5% 18.4%

Return on Equity 0.2% 2.8% 12.3% 15.6% 17.5% 18.4%

HISTORICAL BALANCE SHEET DATA(D)

2004 2005 6/30/06

Cash & Equivalents 445.6 532.6 461.2

Receivables 0.2 88.5 65.8

Inventories 0.8 39.9 50.0

Other 4.7 23.6 25.1

Total Current Assets 451.2 684.5 602.1

Net Property, Plant 1987.2 2663.9 2814.0

Intangible Assets 54.1 60.5 69.9

Other 971.9 536.4 615.5

Total Assets 3464.4 3945.3 4101.5

Payables 86.5 79.8 75.1

Debt Due 10.2 24.5 24.9

Taxes Payable 0.0 0.0 0.0

Other 73.2 165.5 130.7

Total Current Liabilities 170.0 269.8 230.7

Long Term Debt 1649.1 2110.8 2299.9

Other Liabilities 0.9 1.8 1.1

Stockholders Equity 1644.5 1562.9 1569.8

Total Liabilities 3464.4 3945.3 4101.5





QUARTERLY NET REVENUES

Mar. 31 Jun. 30 Sep. 30 Dec. 31 Year

2004 0.1 0.1 0.0 0.0 0.22005 0.0 201.1 251.5 269.4 722.02006 277.2 273.4 305 444.4 13002007 455 485 475 585 2000

QUARTERLY NET REVENUE GROWTH


2005 NMF NMF NMF NMF NMF2006 NMF 36.0% 21.3% 65.0% 80.1%2007 64.1% 77.4% 55.7% 31.6% 53.8%

QUARTERLY EPS (D)


2004 — — — — -0.022005 0.01 0.08 -0.07 -0.04 -0.022006 -0.09 -0.07 0.13 0.48 0.452007 0.62 0.58 0.46 0.59 2.25

QUARTERLY EPS GROWTH (D)


2005 — — — — 0.0%2006 NMF NMF NMF NMF NMF2007 NMF NMF 253.8% 22.9% 400.0%



Footnotes to the Wynn Resorts, Limited Report(A) The Performance Rank incorporates most of the elements of the Value Line Timeli-

ness Ranking System. A computer program combines historical earnings and shareprice data into a forecast of a stock’s price behavior for the next six to 12 months rel-ative to the universe of 1800 stocks in the Value Line Investment Survey–ExpandedEdition. Stocks ranked 1 (Highest) and 2 (Above Average) are likely to outpace theyear-ahead market.

(B) The Technical Rank is Value Line’s ranking of estimated stock price performance rel-ative to the overall market in the next three to six months, based on a complex anal-ysis of the stock’s relative price performance during the prior 52 weeks. Earnings arenot a factor in the Technical Rank. Instead, it is purely a function of relative priceaction and primarily a predictor of relative short-term price movements.

(C) The Safety Rank is a measure of potential risk associated with individual commonstocks. It is computed by averaging two other Value Line indexes—the Price StabilityIndex and the Financial Strength Rating. Safety Ranks range from 1 (Highest) to 5(Lowest). Conservative investors should try to limit their purchases to equitiesranked 1 (Highest) or 2 (Above Average) for Safety.

(D) Diluted earnings. Excludes pre-opening costs and increases(decreases) in fair value ofswap agreements: ’04, ($2.33); ’05, ($0.90); ’06: Q1, ($0.03); Q2, ($0.13). Nextearnings report due early November.

F E B R U A R Y 2 8 , 2 0 0 7 W Y N N R E S O R T S , L I M I T E D 1

© 2007, Value Line Publishing, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is providedwithout warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publica-tion is str ictly for subscriber's own, non-commercial, internal use. No part of it may be reproduced, resold, stored or transmitted in anyprinted, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product.

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The New Macau Casino Drives Powerful Growth

Casino operator Wynn Resorts (NDQ:WYNN) added to its singlecasino location in Las Vegas in late September with the grand open-ing of its new property in Macau, an island located just off of main-land China. After the typical uncertain start when the doors werefirst opened, business now appears to be booming in that market.Coupled with the ongoing success of Wynn Las Vegas, the opera-tor was able to more than double net revenues—a level that wasnot surprising, considering it enjoys revenues from two propertiesnow, instead of the single one a year earlier. Investors should keepin mind, however, that the Macau property is not yet fully opera-tional—construction is still under way at the new resort. The com-pany is also busily working on a sister site next to its namesakecasino in Las Vegas, which will be called Encore. Thus, not onlyare year-over-year comparisons not very meaningful from an in-come standpoint, due to the sudden change in the size of the com-pany, but expense comparisons are also difficult to make, due tothe above-normal post-opening costs in Macau and the construc-tion work going on in Las Vegas. Net revenues for the quarter were

SUPPLEMENTARY REPORT*PERFORMANCE: 3

TECHNICAL: 3

SAFETY: 3

RECENT PRICE: 98

3- TO 5-YEAR PRICEFORECAST: 90-135

STOP-LOSS LIMIT: 74

* Only those subscribers who ordered Value Line Select prior to the original report’spublication date are entitled to the in-depth review of this company. Each Supple-mentary Report is a follow-up to the original recommendation and is not necessarilysufficient by itself to form the basis for an investment decision.

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F E B R U A R Y 2 8 , 2 0 0 7 W Y N N R E S O R T S , L I M I T E D 2

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more than 25% above our initial estimates, indicating the strengthin the Macau business. Wynn reported a net loss of $0.55 a shareon the bottom line, but this total included a number of non-recur-ring items. When these sizable items are removed, net profits reached$0.53 a share, which was eight cents above our recent estimate.

A Special Dividend Rewarded Investors

With the opening of Macau behind it last fall—on time and onbudget—the company declared a special dividend of $6.00 a shareto common stockholders. While we do not expect a repeat of thisin the future, it was a nice bonus for investors. The stock itself hasdone quite well since our recommendation—rising as much as 52%earlier this month, before pulling back when a rumor began circu-lating that the Macau business was declining. Management deniedthese rumors on its post-release conference call, and its fourth-quarter numbers seem to back its side of the story. Even better daysmay be ahead for Wynn: its Encore property is slated to open inearly 2009, and it is currently firming up plans for another casinoresort—this one on the Cotai Strip near Macau. Much like thebuilding boom the enveloped Las Vegas over the past couple ofdecades, Macau is now expanding its gambling venues at a rapidpace. In Las Vegas, this building boom led to an even faster influxof tourists and gamblers—a pattern that appears to be repeating inMacau. Our earnings estimate for 2007 now stands at $2.40 a share,$0.15 a share above our prior target. We continue to rate the stocka Select Hold, due to the appreciation enjoyed thus far, which haspushed the equity into our three- to five-year range already. Wesuggest subscribers increase their stop-loss limits to $74 a share.

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Revenues And Profits Soar, But Comparisons AreNot Equivalent

In the recently completed March quarter, casino operator WynnResorts, Limited (NDQ:WYNN) posted top-line growth of near-ly 130%, while the bottom line moved from a loss to a profit. Butthe comparisons are hardly on an apples-to-apples basis. Despitemanagement’s long history in the casino business, Wynn Resortsbasically remains a start-up operator. The company’s first LasVegas property, Wynn Las Vegas, opened two years ago. Its secondresort, Wynn Macau, opened only last September, basicallydoubling its business potential at that time. So the large increase inrevenues stem mainly from the new property, located just off themainland coast of China. Net income, thanks to the new businessand a drop in pre-opening expenses, moved from a loss of $0.09 ashare a year earlier to an adjusted profit of $0.67 a share in therecent period (these results exclude non-recurring items thattotaled $0.13 a share).

SUPPLEMENTARY REPORT*PERFORMANCE: 3

TECHNICAL: 2

SAFETY: 3

RECENT PRICE: 97


STOP-LOSS LIMIT: 74



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Much Promise Remains, But A Cautionary ToneFrom Management

Since our initial recommendation, the shares of Wynn Resorts havesoared nearly 30% (not including a large special dividend, of $6.00a share). When the company released its earnings report after theclose of the market earlier this week, the shares rose quickly in after-hours trading, only to fall a bit once trading opened the followingday, and the company concluded its conference call with analystsand investors. Steve Wynn, the Chairman, injected a note of cau-tion regarding expectations for future business prospects in Macau.He reminded listeners, as he has done in the past, that the company(and the industry) is still learning how to best serve the local clien-tele in that region, and that consumer demand in future quartersmay be different than in the March period. A tremendous amountof new construction is planned for that market—including at leastone new property from Wynn. A competitor, Las Vegas Sands(NYSE:LVS) recently reported some softness in their business inMacau, and the territory experienced a labor protest recently thatresulted in shots begin fired by police and numerous arrests. Wynnalso continues construction on a sister resort in Las Vegas, calledEncore, which is scheduled to open in 2009. In all, we think Wynnremains in a very competitive position in both locations, and willlikely enjoy greater success once the construction (both its own andits competitors’) winds down, and customer traffic can build in thenewly opened casinos. The path may not be an even one, though.We are trimming a nickel off of our earnings estimate for 2007,lowering it to $2.35 a share (we added $0.15 three months ago).The stock remains a Select Hold. We suggest subscribers maintain a$74-a-share stop-loss limit on the equity.

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Table Win Percentages Tick Up, But It Was StrongDemand That Drove The Business

Luxury casino operator Wynn Resorts, Limited (NDQ:WYNN)continues to excite investors with exploding business in its twocurrent properties, and with the promise of more to come withnew properties under construction in both Las Vegas and in Macau,which is located just off the coast of mainland China. In the thirdquarter, net revenues (after promotional allowances) more thandoubled. The year-over-year comparisons are not on equal foot-ing, however, as the Macau property was only open for about onemonth in the year-earlier quarter. The casino operator enjoyed high-er table win percentages at both properties, while slot win percent-ages dropped in Las Vegas. However, it was higher customer countsthat drove the business (win percentages tend to bounce aroundfrom quarter to quarter—or even day to day). Casino revenuessoared by 177%, while room, food and beverage, and entertain-ment and retail revenues showed increases of 22%, 14%, and 32%,respectively, in the period. Excluding non-recurring expenses, profitsreached $0.67 a share—a marked improvement from the one-centloss in 2006’s September period.

SUPPLEMENTARY REPORT*



PERFORMANCE: 2

TECHNICAL: 2

SAFETY: 3

RECENT PRICE: 161


STOP-LOSS LIMIT: 130

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Despite The Success, Many Investors HadHigher Hopes

The success of Wynn’s new properties—particularly in Macau—have drawn increasing interest from investors. And, accompanyingthis interest has been a seemingly unreachable level of expecta-tions. In early October, a report that alluded to soft demand inMacau sent the shares reeling, and the stock—which had appreci-ated some 90% in the prior three months—fell more than 10% ina single day. A similar decline accompanied the recent earningsrelease. Despite the favorable results, the equity lost as much as12% following the earnings report. We think that the high pricelevel of the shares, along with a potentially greater degree of specu-lation by some investors, may lead to increasing volatility goingforward. On an operational basis, we remain impressed by Wynn’sresults, and, with the new properties in the pipeline—Encore inLas Vegas, a major expansion in Macau (now slated to open at theend of 2007), and the recent announcement of the planned con-struction of 1,500 to 2,000 luxury suites in Cotai (which is adja-cent to Macau)—we think further profitability lies ahead. To thatend, we are raising our 2007 earnings estimate to $2.90 a share.While we will maintain Wynn shares on our Select Hold list, wesuggest any subscribers not yet heeding our prior advice to lock insome profits by selling a portion of their shares do so at currentprice levels. We are raising our stop-loss limit to $130 a share, a$35-a-share increase. (Note: While we have raised our three- tofive-year price target, the shares already trade within that range.)

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Market Unease Takes A Winning Stock

In our prior Supplementary Report on Wynn Resorts, Limited(NDQ:WYNN), we pointed out that the shares were already trad-ing within our three- to five-year price target, and we significantlytightened our stop-loss limit at that time. We were worried thatinvestors had pushed the stock to lofty levels, which could leavethe equity vulnerable in a general stock market sell off. That down-turn did occur, and the stock fell through our $130-a-share stop-loss limit, triggering the closing of our coverage. But subscribersfollowing our advice locked in a total return of at least 80% in justover a year (the return may have been significantly higher if profitswere taken in the interim, as we suggested). In comparison, theS&P 500 rose 11% over the same time frame. This will be ourfinal report on Wynn Resorts.

F I N A L S U P P L E M E N T

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