The shares of the resort and casino operator Wynn Resorts (Nasdaq: WYNN) were battered for the past few days after Shaun Kelley, an analyst at Bank of America Global Research, downgraded the company to “neutral” from a “buy” rating. In the after-hours trading, the stock had lost $1.92 or 1.54% to trade at $123.05.
The downward revision was carried out on worries over the deadly coronavirus that is fast spreading across the globe. Notably, Wall Street analysts initially brushed away the likely negative impact of the Wuhan coronavirus on companies operating casinos in Macau. However, as the death toll started rising, the market has begun assessing the possible impact on various sectors.
In his research note to clients, analyst Shaun Kelley pointed out Wynn’s exposure to global tourists and opined that the terrible timing of the virus outburst just before the Chinese New Year holiday is adequate for investors to take a prudent plan to the stock as of now.
The analyst further stated that that the coronavirus seems to be more contagious than experts earlier thought, even though the virus looks less dangerous than SARS. The SARS virus initially affected humans in South China in 2002 and ultimately took 774 lives in 17 nations.
China has so far reported 81 deaths and more than 2,700 confirmed cases. Furthermore, Beijing has warned that the incubation period of the virus could be up to two weeks, constraining measures to screen and identify those who may be likely bearing the virus. What makes the virus more dangerous is that there is little knowledge about the illness, treatment, and the manner in which it spreads.
While the outbreak of SARS had a considerable impact on Hong Kong and Macau, it might not be so in case of coronavirus as Wuhan is 600 miles away. Specifically, out of 2,744 confirmed cases, only eight cases have been reported from Hong Kong and five from Macau. Still, Kelley wants investors to be cautious.
Kelly said, “What is known about the disease, its curability and how it spreads is still limited, but as we learn more, the virus appears to be more difficult to combat than expected, esp. as it may be contagious during its incubation period (unlike SARS).”
The analyst believes that the situation could revert back to normal in the weeks ahead. However, according to Kelly, there is a substantial near-term risk. He wrote: “While the situation could stabilize in coming weeks/months, near-term headline risk is significant, there is limited valuation support for (Wynn and Las Vegas Sands (LVS) – Get Report) following the recent runup, and our sense is U.S. investors have yet to capitulate.”
Kelly underlined that the shares of casino operators having operations in Macau have so far declined more than the broader market as the firms are heavily exposed to tourists, and the timing of this outbreak coincides with Chinese New Year.
On the basis of the facts mentioned above, Shaun Kelley slashed the stock price to $150, from $160. In his research note, the analysts wrote that “concerns have grown over the past week as fears and headlines regarding the Wuhan coronavirus have spread.”
The rating downgrade is anticipated to keep the stock bearish in the short-term.
The historical price chart indicates that the stock has closed below its 50-day moving average. Additionally, the stochastic oscillator is declining towards the bearish zone. The stock is also facing heavy resistance at 150 levels. The next major support is anticipated only near 100. Therefore, we are expecting the stock to remain in a downtrend in the days to come.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
