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Best of Howard Stutz

Gaming Guru

Howard Stutz
 

Gaming Stocks Rebound in Quarter

1 July 2005

After a rocky three months, gaming stocks closed 2005's second quarter on an uptick, a Las Vegas index showed. Both casino operators and equipment manufacturers showed increases in their average daily prices during June.

The Applied Analysis Gaming Index, a weighted average of nine local gaming stocks compiled by the Las Vegas-based financial consulting firm, increased for the first time since March.

The completion of Harrah's $9.4 billion buyout of Caesars Entertainment, and an announcement that April's gaming win jumped more than 6 percent statewide helped push stock prices of gaming companies higher. News that three equipment manufacturers will collaborate to create a table-game management system and Wynn Resorts Ltd.'s unusual decision to release operating results for the first 34 days of Wynn Las Vegas also boosted gaming stocks.

Applied Analysis partner Brian Gordon expects gaming stocks to continue their upward climb in July as companies announce quarterly earnings.

"Those results are expected to be positive and on par with expectations," Gordon said. "But it will be more interesting to understand management's perceptions of the coming summer months with any adjusted guidance on third-quarter performances."

Gordon said investors saw value in slumping stock prices, and buying activity gave the sector a needed boost.

"There really haven't been any changes in the fundamentals," Gordon said. "All the indicators have continued to show strength in the sector."

MGM Mirage posted June's strongest monthly performance, with the stock price climbing 14.6 percent during the 30 days. Compared with June 2004, MGM Mirage's stock price is up more than 71 percent. On Thursday, MGM Mirage closed at $39.58, down 23 cents or 0.58 percent.

During June, the company announced plans to develop and manage a video lottery casino at the Aqueduct racetrack in New York and began construction on a $975 million hotel-casino in Macau.

The average daily stock price of Wynn Resorts jumped almost 12 percent in June. The company surprised analysts by unveiling the initial results of Wynn Las Vegas for its first 34 days, showing total gaming win of $64.3 million and nongaming revenues of $76.6 million. The combined total -- which represented revenues of $4.1 million a day -- surpassed all analyst expectations.

"While this unusual move thwarted concerns about the success of the much anticipated opening by increasing the company's stock price, it does provide for some potential downside," Gordon said. "We will be monitoring the company's second-quarter earnings report closely to determine the amount of revenue the company posted in the second month of its opening."

Gordon said Wynn Las Vegas wasn't expected to retain the excitement it generated immediately following the resort's April 28 opening and analysts will be interested in computing the change in the property's May activity compared with June. If there is a decline, it could hamper the company's stock price through the third quarter.

"While we anticipate a certain level of volatility post-opening, investors may not be so accepting," Gordon said.

Wynn Resorts finished June at $47.27, down $2.22 or 4.49 percent. The company also announced in June it would add nine months of planning and development to its proposed Encore project next to Wynn Las Vegas. The property is now planned for 2,000 rooms with a cost of $1.4 billion.

The closing of Harrah's purchase of Caesars culminated in 315 million shares of Caesars being converted into Harrah's stock at a rate of 0.2211 for every one share of Caesars. In all, Harrah's shares rose almost 7 percent during the month.

On Thursday, Harrah's closed at $72.07, down 29 cents or 0.40 percent.

Equipment manufacturers benefited from increased interest by markets outside the United States looking to add slot machines. This interest gave investors reason to come back to that area of the gaming sector.

Industry leader International Game Technology, which had its average daily stock price jump 3.7 percent in June, joined with Shuffle Master and Progressive Gaming International Corp. in announcing a development deal to create an automated table-game management system.

"There are some developing markets while the product agreement was well-received by investors," Gordon said.

Shares in IGT closed Thursday at $28.15, down 35 cents or 1.23 percent. Alliance Gaming had the biggest jump of any manufacturer in June, with its average daily stock price climbing more than 15 percent. Alliance shares closed Thursday at $14.02, down 27 cents or 1.89 percent.

Gaming Stocks Rebound in Quarter is republished from Online.CasinoCity.com.