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Morgan Stanley downgrades Wynn Resorts on regulatory risk

  • Morgan Stanley lowers its rating for Wynn Resorts to equal weight from overweight, citing its lower confidence the company will beat expectations this year.
  • "After significant outperformance in the past year, we suggest taking profits on WYNN," the firm's analyst writes.
Wynn Macau casino resort, operated by Wynn Resorts, in Macau, China.
Brent Lewin | Bloomberg | Getty Images
Wynn Macau casino resort, operated by Wynn Resorts, in Macau, China.

Investors should take profits in Wynn Resorts shares because of rising uncertainty, according to a top Wall Street firm.

The company announced on Tuesday Steve Wynn resigned as CEO and chairman of Wynn Resorts. The move comes after a Wall Street Journal report published in January detailed allegations of decades of sexual misconduct by the gambling mogul.

Morgan Stanley lowered its rating for Wynn Resorts to equal weight from overweight, citing its lower confidence the gaming company will beat expectations this year.

"After significant outperformance in the past year, we suggest taking profits on WYNN. We believe the market has gradually recognized our Macau market / share outperformance thesis, hence there is no longer the same upside," analyst Thomas Allen wrote in a note to clients Friday. "In addition, following recent events leading to the resignation of Steve Wynn, there is greater fundamental / execution risk, as well as new regulatory risk."

Wynn shares fell 1.8 percent Friday.

The company's shares are up 71 percent in the past 12 months compared with the S&P 500's 12 percent return.

Allen reiterated his $193 price target for Wynn Resorts shares, representing 14 percent upside to Thursday's close.

The analyst cited how Massachusetts, Nevada and Macau gaming regulatory bodies are currently investigating the allegations of Wynn's sexual misconduct.

He also noted the Wall Street consensus estimate for Wynn's 2018 Macau market share has risen to 16.9 percent versus 13.5 percent one year ago.

"Our prior thesis on WYNN was that we believed investors underestimated both the size of the Macau market and WYNN's future market share," he wrote. "While we still believe Macau will outperform, we don't have the same conviction around WYNN's market share."

Wynn Resorts declined to comment for this story.