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Best of Howard Stutz

Gaming Guru

Howard Stutz
 

Sun may shine on some regional gaming companies

10 July 2012

Moody's Investors Service gave the regional gaming community a smackdown last month.

Casinos in several markets, such as the Northeast and central United States, were said to be having difficulties financially, brought about by oversupply and diminished gaming revenue figures.

One Wall Street gaming analyst, who did his own survey of regional casino jurisdictions, came up with different results, which was good news for Las Vegas-based companies, such Pinnacle Entertainment, Ameristar Casinos and Boyd Gaming Corp.

Macquarie Securities gaming analyst Chad Beynon agreed with some of Moody's findings that quarterly trends were down and below expectations. However, he maintained his previous financial estimates for regional gaming operators through the first six months of 2012, saying that June's results could give investors a lift.

"We expect to see some recovery in June as the favorable calendar will have two additional weekend days relative to June 2011," Beynon said.

During May and June, Beynon calculated that casinos in New York, Mississippi, Illinois and Maine would experience the largest gaming revenue bounces.

As for the weakest states, Beynon gave the nod to New Jersey, Connecticut, Indiana and Missouri.

Still, there are some bright spots in those jurisdictions.

Pinnacle Entertainment operates the best-performing casino in Indiana, its Belterra property, which saw revenues increase 17 percent year over year in May. Also, Pinnacle's River City Casino in St. Louis and the company's flagship L'Auberge du Lac in Lake Charles, La., had solid months.

Pinnacle has caught the attention of stock market-watchers recently.

The company completed the sale of its only Nevada casino, the Boomtown Reno, for $12.9 million. But Pinnacle also acquired the bankrupt company that owns the popular Heartland Poker Tour. Pinnacle plans to locate some of the tour's televised stops at the company's casinos in St. Louis and Louisiana.

"Vegas and Atlantic City gamblers may have never heard of Pinnacle Entertainment, but that's because the company's six casinos are tucked away in Louisiana, Missouri and Indiana," the Internet stock-picking service Motley Fool told investors recently.

"Pinnacle is trading for just 11 times this year's projected profitability, and it has blown past Wall Street's quarterly bottom-line targets by 35 percent or better over the past year," according to the Motley Fool.

Meanwhile, Beynon said Boyd Gaming has seen a boost in its Louisiana results from an unlikely source, the company's Delta Downs racetrack in Western Louisiana. The casino has experienced a 4 percent increase in revenues during the second quarter.

Boyd is gaining some looks from investors for other reasons.

In April, downtown Las Vegas gaming revenues jumped 25 percent over the prior year. Boyd Gaming owns a third of the downtown market share with its three properties, the California Hotel, Fremont and Main Street Station. It markets heavily to customers from Hawaii.

Steve Thompson, Boyd Gaming's senior vice president of Nevada operations, told the Las Vegas Review-Journal that downtown developments help Boyd better market to Hawaiian visitors who utilize the company's charter flights.

"The economy hasn't returned to pre-2007 levels," Thompson said. "Visitation has returned."

Boyd Gaming is also receiving praise for its $1.45 billion acquisition of Midwest casino operator Peninsula Gaming, which includes the company's five casinos in Kansas, Iowa and Louisiana. The deal is pending regulatory approval and could close by the end of this year.

The Kansas Star Casino near Wichita, which becomes a Boyd property when the Peninsula deal is complete, netted $15.1 million in gaming revenue in May, bringing its total revenues to almost $85 million since its Dec. 20 opening. The property is the state's top-producing gaming hall.

On the flip side, Ameristar Casinos experienced a gaming revenue fall-off in several of the company's key markets, including its Indiana property that draws visitors from the Chicago area. A road closure now going on two years has kept revenues down.

The company's casino in Kansas City, Mo., saw gaming revenues decline 13 percent in May.

Analysts, however, believe Ameristar will find success from its plans to build a $500 million hotel-casino complex in Lake Charles, La., that will cater to customers in southwestern Louisiana and southeastern Texas, including the Houston metropolitan area.

In June, Ameristar completed its purchase of the development on 242 acres from Creative Casinos of Louisiana for $32.5 million. The company told Louisiana gaming regulators it would begin construction this month.