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Best of Howard Stutz

Gaming Guru

Howard Stutz
 

Gambling stocks start '07 with January jolt

1 February 2007

LAS VEGAS -- January was a good month to own stocks in the gaming industry's major companies.

Expectations of profits internationally, primarily in the Chinese gaming enclave of Macau, and investor speculation that additional gaming operators would turn to private equity financing sent the average daily stock prices of several casino operators to record levels during the month.

Las Vegas-based financial consultant Applied Analysis, which tracks the average daily stock price of six casino operators and three gambling equipment manufacturers, said its index of those companies cracked the 500-point level for the first time during the month.

Brian Gordon, a partner in Applied Analysis, said that the start of quarterly earnings reports during February could send some stock prices down as investors cash out some profits. Las Vegas Sands Corp., MGM Mirage and Boyd Gaming Corp. are all scheduled to release earnings for the 2006 fourth quarter in the coming weeks.

"The valuations have reached all-time highs for a majority of the companies," Gordon said Wednesday. "And certainly, when the valuations reach such peak levels, it's not unusual for investors to realize gains by selling some of their holdings."

Two companies, Wynn Resorts Ltd. and Las Vegas Sands Corp., had their average daily stock prices climb above $100 per share during the month, driven primarily on Macau expectations. The Chinese government said Macau's annual gaming revenues, in the manner they are reported, had surpassed the annual gaming win on the Strip.

Gordon said the early presence in Macau by Las Vegas Sands and Wynn, which are operating casinos in the region, is reflected in the companies' average daily stock price.

"The operators with an early presence in Macau are expected to benefit because they have been able to generate customer loyalty programs and capture a larger market share as new operators enter the competition," Gordon said.

MGM Mirage, which is building the $1 billion MGM Grand Macau, saw its average daily stock price reach nearly $66 because of a bid by majority shareholder Kirk Kerkorian to increase his holdings in the casino operator. The Los Angeles billionaire sought to acquire 15 million shares at $55 per share, but his efforts fell far short.

The move, however, did enough to spur investor interest in MGM Mirage.

"The level of interest on the part of willing sellers at Kerkorian's proposed purchase price was limited," Gordon said. "Also noteworthy was the company's expansion into nongaming hotels, which may change the product distribution for the operator, should they continue to seek out branding and development opportunities with joint venture partners."

The average daily stock prices of slot machine makers also increased in January as analysts said the prospects for new orders could be increasing toward the end of the year.

Gaming analyst Joel Simkins, who initiated coverage of the industry in January for the Prudential Equity Group, said demand from new gaming jurisdictions will fuel the profits for slot makers.

"Competition in the gaming equipment business is more intense than ever, as domestic manufacturers, including WMS Industries and Bally Technologies, as well as international players Aristocrat Leisure and Konami Gaming, are well capitalized and have some of their strongest products in years," Simkins said.

AVERAGE DAILY STOCK PRICE

Jan 2006

Jan 2007

% change

MGM Mirage

$37.01

$65.88

78%

Harrah's Entertainment

$72.31

$83.27

15.2%

Las Vegas Sands

$45.77

$101.30

121.3%

Wynn Resorts

$57.39

$104.03

81.3%

Boyd Gaming

$45.53

$47.10

3.4%

Station Casinos

$67.61

$81.77

20.9%

International Game Technology

$33.12

$46.47

40.3%

WMS Industries

$25.32

$38.51

52.1%

Bally Technologies

$14.17

$18.56

30.9%