Penn Wealth Publishing

2019.12.08 Penn Wealth Report Vol 7 Issue 05

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16 penn wealth Report volume 7 issue 05 08 Dec 2019 Penn Wealth Report Copyright 2019. All Rights Reserved. investment intelligence weekly Business Report the streaming wars are heating up anD getting (a lot) costlier as services pay Big For hit tv shows Two months ago we discussed how overval- ued we thought Netflix ($231-$295-$387) was, especially after taking into account the slew of new entrants all vying to both create new hit shows and buy proven ones for their respective libraries. At the time, Netflix was selling for $380 per share—nearly $100 more than where the shares currently trade. We are beginning to get a taste for how the new platforms will cause upheaval in the industry as the feeding frenzy for proven shows heats up. HBO Max, AT&T's (T $27-$37-$39) new service which will launch next spring, reportedly just paid around $500 million for the five-year rights to e Big Bang eory, which is currently running on WarnerMedia's (now part of T) TBS net- work. at new service also yanked Friends away from Netflix for $425 million. Not to be outdone, Netflix acquired the global streaming rights to the classic sitcom Seinfeld for around $500 million. Rights to e Office, which has been running on Netflix, were purchased for $500 million by Comcast's (CMCSA $33-$47-$47) new NBCUniversal streaming service, which will be called "Peacock." e Walt Disney Company (DIS $100- $136-$147) pulled its entire library of Disney and Marvel shows and films from Netflix, as they will have exclusivity on the new Disney+ platform. Disney's stream- ing service will also be the only place to watch shows and movies from the Star Wars franchise. Whew. A lot of moving parts, and an incredible amount of cash being thrown around. is gives us a sense for how the moat around streaming pioneer Netflix has begun to shrink. And we didn't even touch on Apple TV+, Apple's (AAPL $142-$221- $233) new service coming this fall. Is your head spinning after trying to keep track of where all these hit shows will land? at's part of the problem. Consumers of entertainment are only going to plop down so much per month for the various services, and you can bet there will be some losers. But let's focus on who will win the battle of the living room (or wherever you watch shows on your devices). From the above list, we see Disney and Apple coming away as the clear win- ners. Not so much because their services will outperform the competition, but because their platforms are just one part of growing array of other products and services they offer to the global marketplace. aFter upgraDe, wynn resorts may look tempting, But we have our reservations Of all the gaming stocks, Wynn Resorts (WYNN $90-$111-$152) has been our favorite one to trade over the course of the past two decades. After Steve Wynn's fall from grace in early 2018, however, we have steered clear of the company pending a bet- ter sense of the new management's ability to forge and execute on a sound strategic plan. Furthermore, as we batten down the hatches due to the global economic slowdown, highly-cyclical stocks—like WYNN—have taken a back seat. Against that backdrop, we took notice when Goldman Sachs analyst Stephen Grambling upgraded the company from Neutral to Buy, pushing up his target price on the shares from $140 to $155—a 40% upside from here. Grambling contends that Macau, where Wynn owns two mega-resorts responsible for 77% of the company's 2018 EBITDA, is about to make a resurgence, with the high-rollers and VIP gamblers nat- urally gravitating to the Wynn facilities. At first glance, shares of WYNN do appear comparatively cheap. e company's 14 P/E ratio is impressive for the industry, especially when compared to its rivals' mul- tiples: MGM Resorts (MGM) has a P/E of 86, and Caesars Entertainment's (CZR) 107 multiple went to "N/A" after reporting a loss last quarter. But Wynn's earnings per share (EPS) figures have been on a negative trajectory, down 39% in the most recent quarter (YoY), and down 27% year-on-year from 2017 to 2018. en there are the geopolitical issues. Macau is a special administrative region (SAR) of China. It happens to be a 30-min- ute ferry ride away from another SAR: Hong Kong. Certainly, what is going on in Hong Kong right now could not realistically happen in Macau, but it would be naïve to discount the protests, trade battles, and the slowdown in the rate of Chinese economic growth as potential dampeners on the com- pany's regional operations over the next year or two. Case in point: consider the great flow of wealth out of Hong Kong since the protests and subsequent clampdowns by the govern- ment ramped up. Not only has there been wealth destruction within the markets, there has also been a mass exodus of wealthy citizens (both from Hong Kong and the mainland) leaving for greener pastures in Australia, the United States, Canada, and other Asian countries. at 30-minute ferry ride to hit the casinos no longer exists for these expatriates. Hence, our reservations on Goldman's call. Where would we buy shares of Wynn? Anywhere below $120 per share is probably a safe bet. peloton shares are a Bargain—at some price point In the wild and frenetic arena of 2019 IPOs, there have been some companies we had to own on the first day of trading, some we wouldn't touch at any price, and a few we just weren't sure of. Connected fitness equipment company Peloton Interactive (PTON $25-$26-$28) fell under that last category, the one with a question mark. We believe that, despite the perennial net losses, the company will be a success, tak- ing out long-established fitness equipment makers along the way, but that belief didn't warrant a purchase on IPO day. In fact, PTON shares ended their first day down just over 11%, closing at $25.76. at puts the company's valuation around $7 billion, which still seems about 25-30% high to us. Supporting that argument, the company Weekly Business Report meDia & entertainment hotels, resorts, & cruise lines e content of this report reflects the personal views, opinions, and research of Penn Wealth Publishing. While measures are taken to help assure the accuracy of data, no guarantees can be made and the firm is not liable for any losses incurred by subscribers. is is not a solicitation to buy. Always consult your investment professional before investing any money. leisure equipment & proDucts

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