Wynn Resorts - Odds Are Not in Your Favor

Wynn's business model is fairly simple. Four casions: 

1) Wynn Las Vegas. $1.1B of rev in 2008, 480M from gaming, rest from food and retail. The revenues looked much better in 2007 ($1.3B), when people played more and payed up for their fancy rooms. 2009 is bringing bigger (better?) things: Encore is opening, which means number of table is going from 140 to 230, slots are increasing by 700, rooms are almost doubling. Ah, if only we go back to 2007 party-time, this would be a x revenue property, with x being, lets see:

~900M from tables + $270M from slots  - 150M on losses = $1.1B from casino.

+ $500M from rooms + $600M from food and bev + $100M in retail + $150M in other. In total, lets say $2.2B! Damn that's quite a drop from analyst projections of $1.3B for 2009!! At 30% margin that $2.2B could have been $600M+ in EBITDA. Now it's at a paltry $350M.

2) Macau doesn't have the changing room component this year, and the revenue is not crushed as much: $1.8B in rev, $450M in EBITDA. 

The value of the stock is really normalized EBITDA (which is $800-$1.1B x lets say 9x, uber generously), so maybe 8B - 2.5B in debt + $500M for golf course land (is it really worth that?) = $6B / 120M shares  = 50 per share. Now, personally 9x seems rich of an industry that has consistently underperformed its ROIC targets. And the supply/demand outlook for the markets doesn't look so good. + Macau is a wild card - can go either way. Overall I'd rather stay away.

Zimmer and Stryker - Move Your Hips

Both companies are leaders in orthopedic sector, or more simply they make hips and knees. The global $12B market (5 hips, 6 knees) is fast growing (~10% growth in recent years, except little to no growth in 2009, a lot of it due to strong dollar). Post 2009, market is expected to recover to 10% growth as fatties continue proliferating (from 18% prevalence in 1998 to 25% recently - 5% growth vs 1% population). Overall procedures were growing 6%+, as tech has improved somewhat as well, making the procedure more attractive. Products are getting more competitive though (reflected in no price growth recently vs 10% growth in 2002-2004), and there are share shifts - Zimmer is losing for example. It is trading, on the other hand, pretty cheaply as well - 10x P/E. I can see how multiple can expand to 12-13x + lay a fairly attractive growth profile on top of that, but still, I struggle to see where I can have a differentiated view.

Corrections Corp - Intriguing Value, But Will Inmates Roam The Streets Soon?

CXW is a private prison operator, running around 70 high-security and temp holding facilities for federal and state governments. Bull thesis, which has been working up until recently, is simple: number of prisoners in the country is growing (2.3M now, 5% CAGR from 1980, although slowed down to 2% recently), government prisons are overflowing (running at 105%+ capacity), and with no capex in sight utilization will continue to be tight. In come the private operators, who can run the facilities cheaper and construct them faster - why not just outsource to them? In fact, that's what has been happening, as private operators share of new "beds" (fun industry term) has climbed from 10% in 96 to 30% in 2007. They're still at low levels of penetration though: 160K beds for the industry (or 7% share), so assuming the # of inmates in the U.S. grows at 2%, and private institutions get ~30% market share of new beds going forward - that's 8% growth! CXW is the leader with 47% share of private market, and with barriers to entry high - states don't just want to send inmates to a non-proven operator, they can expect to get their fair share of the pie. So 8% growth long-term - not bad, right? Couple of hiccups though.
A) States have huge holes in their budgets. With this they may try to cut pricing.
B) Obama, in spirit of his mj-smoking youth, may decide to ease up on drug abuses, which account for 20% of U.S. inmates, which would be a huge hit to utilization of the industry.

I think B is scarier than A (doubtful that states would just let everyone roam free, if CXW resists price cuts), but B is more difficult to assess, and is a longer-term threat. Overall, the valuation at 10x P/E is attractive, and I would expect to grow to ~14-15x, implying 50% upside. For the moment, I'm staying away though.