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Best of Howard Stutz

Gaming Guru

Howard Stutz
 

Gaming stock prices rebound in August

2 September 2008

LAS VEGAS, Nevada -- Gaming got off the mat in August and landed a counterpunch.

For the first time in five months, the average daily stock price of the major publicly traded casino operators and slot machine makers rebounded after some companies fell to historic lows.

Nine of the 10 companies charted by Las Vegas-based financial adviser Applied Analysis showed double-digit increases in their average daily prices when comparing August with July. Only slot machine giant International Game Technology had a month-over-month decrease.

However, when comparing the average daily stock prices from a year ago, the major casino operators are down anywhere from 13 percent to nearly 69 percent.

"We still have a long way to go," said Brian Gordon, a principal with Applied Analysis. "After five consecutive months of declines, investors may finally be finding value at the current pricing levels."

Gaming stocks received a boost in August by two pieces of news.

First, Boyd Gaming Corp. halted construction of the $4.8 billion Echelon project for at least a year due to sagging credit markets. Wall Street hailed the move as prudent, and shares of Boyd Gaming grew almost 28 percent on an average daily basis in August, the highest of any company.

A week later, MGM Mirage posted second-quarter earnings that were better than Wall Street expected. Shares of MGM Mirage grew 14 percent on an average daily basis during the month.

"The stocks got a little bit of a pop, which alleviated some concerns," Gordon said.

The Applied Analysis Gaming Index, which charts the companies, grew 41.01 points to finish August at 411.59.

Regional casino operators, such as Penn National Gaming, Pinnacle Entertainment and Ameristar Casinos, also showed double-digit average daily stock price increases.

Macquarie Capital gaming analyst Joel Simkins said in a recent note to investors that regional casino markets would show sequential improvement in August when gaming revenue numbers were released. He thought several companies could meet or exceed third-quarter expectations.

"The promotional environment remains rational as operators hunker down and appear to be avoiding the margin pitfall that comes with aggressive promotions to low theoretical value patrons" Simkins said. "Cost-cutting efforts remain a key focus in particular as regional operators reduce floor and midlevel positions."

Gordon thought casino operators would receive a boost at the end of the year when Wynn Resorts Ltd. opens the $2.2 billion Encore at Wynn Las Vegas. Thursday's unveiling of the $250 million Eastside Cannery and the Nov. 11 opening of the $675 million Aliante Station aren't expected to provide much of a bump, Gordon said. Both Cannery Casino Resorts and Station Casinos are privately held.

IGT's more than 4 percent decline in its average daily stock price was not a surprise to some gaming analysts.

David Katz of Oppenheimer said IGT is facing competition from Bally Technologies and WMS Industries.

Average Daily Stock Price

Jul 2008 Aug 2008 Change

MGM Mirage $28.13 $32.13 14.20 percent

Las Vegas Sands Corp. $40.84 $47.45 16.20 percent

Wynn Resorts Ltd. $85.56 $99.41 16.19 percent

Boyd Gaming Corp. $9.87 $12.60 27.58 percent

Penn National $27.99 $31.58 12.84 percent

Pinnacle Entertainment $9.85 $11.39 15.59 percent

Ameristar Casinos $12.73 $14.96 17.59 percent

International Game Technology $23.32 $22.31 -4.35 percent

WMS Industries $28.36 $31.50 11.09 percent

Bally Technologies $29.48 $33.14 12.40 percent

SOURCE: Applied Analysis