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Best of Howard Stutz

Gaming Guru

Howard Stutz

Casino Stocks Rebound

1 December 2005

MISSISSIPPI -- After a three-month slide gaming stocks rebounded in November, shaking off the effects of Gulf Coast hurricanes and higher fuel prices.

Most of the major casino companies saw their average daily stock prices experience double-digit, month-over-month percentage increases.

"From the 27th of October to the third of November, things changed for the better," said CRT Capital Group gaming analyst Steven Ruggiero. "People got their fears behind them and several companies reported good earnings."

Ruggiero said in the previous months investors took a cautious approach to industry. The biggest fear was that hurricanes Katrina and Rita, which damaged two dozen casinos in Mississippi and Louisiana, causing their closure for all or parts of the past three months, would also destroy the quarterly earnings of the major gaming companies.

"When MGM Mirage reported earnings, people didn't like what they had to say and there may have been a bit of an over-reaction," Ruggiero said. "When companies such as Penn National Gaming and Pinnacle Entertainment started reporting earnings, people felt a little more comfortable about the future."

Applied Analysis, a Las Vegas-based research firm that compiles a weighted average of nine local gaming stocks, said its index had its largest single-month increase in November, following an October drop that was its largest single-month decline.

"Investors saw some value in the sector," said Applied Analysis partner Brian Gordon, who follows the gaming industry. "The concerns they had in previous months went away when the company quarterly earnings came out. Declining fuel prices also alleviated investor concerns about discretionary spending."

MGM Mirage was the only major casino operator to experience a decline in its average daily stock price, falling 4.57 percent. Investors reacted negatively to the company's third-quarter earnings in late October, which were affected by the closure of its casino in Mississippi due to Hurricane Katrina, sending the company's stock price down almost 14 percent in one day.

On Wednesday, MGM Mirage, like much of the gaming sector, was off in trading, closing at $38.11, a drop of $1.09, or 2.78 percent.

Other casino operators showed large increases in their stock performance during November.

The average daily stock price for Las Vegas Sands Corp., which operates The Venetian, rose almost 27 percent in November compared with the company's performance in October. The average daily stock price of Wynn Resorts was up 19.3 percent compared with October's average daily total.

Boyd Gaming Corp. also experienced a double-digit increase in its average daily stock price, climbing 17 percent in comparing November with October.

All three companies fell in trading on Wednesday; Las Vegas Sands closed at $41.71, down $1.09 or 2.55 percent; Wynn fell $1.78 to close at $55.83, off 3.09 percent; while Boyd Gaming was off 60 cents to close at $48.38, down 1.41 percent.

As with Boyd, which operates several casinos catering to Las Vegas residents, Station Casinos had a positive month, showing an increase of 5.34 percent in its average daily stock price compared with October.

Gordon said that positive economic indicators, which included job growth and population increases, bode well for the operators of locals-oriented casinos.

The average daily stock prices for slot machine manufacturers were mixed during November.

Reno-based International Game Technology saw its average daily stock price climb almost 5 percent; WMS Industries fell more than 10 percent.

Both gaming equipment suppliers were affected by the hurricanes with WMS reducing its guidance -- what the company perceives to be its future earnings -- because of the storms' effect on the Gulf Coast region.