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Gaming Guru

Howard Stutz

EARNINGS: Ameristar Cites More Competition

27 July 2006

LAS VEGAS, Nevada -- Las Vegas-based Ameristar Casinos faced increased competition in several of its regional gaming markets during the recently completed second quarter, but the company was still able on Wednesday to report increases in revenues, net income and earnings per share.

Company Chairman Craig Neilsen said Ameristar is exploring different expansion scenarios in Council Bluffs, Iowa, where its riverboat property experienced increased competition from two casinos operated by Harrah's Entertainment.

"We maintained our marketshare leadership in Kansas City, (Mo.), Vicksburg, (Miss.), and Jackpot," Neilsen said during a conference call with analysts to discuss the company's results for the quarter than ended June 30.

Ameristar reported revenues of $246.6 million, a 3 percent increase compared with $241.7 million in the same quarter a year ago. Net income was $18 million, an 8 percent increase compared with $16.6 million last year.

Ameristar earned 32 cents per share in the quarter, compared to 29 cents per share in the same quarter a year ago. Analysts polled by Thomson First Call predicted the company would earn 24 cents a share.

Neilsen said the company completed the renovation of its casino in Black Hawk, Colo., just outside of Denver, to Ameristar Black Hawk and is continuing expansions, including a $180 million hotel tower, at the property. Revenues at the casino were $21.2 million, up 35 percent from $13.8 million in last year's second quarter.

"Once completed, we believe the property will be able to offer destination resort amenities and services never before seen in the Denver gaming market," Neilsen said.

Council Bluffs turned into Ameristar's biggest challenge.

Harrah's spent $85 million to create Horseshoe Council Bluffs, the area's first land-based casino. Harrah's also operates a Harrah's brand riverboat casino that also competes with Ameristar's property.

Neilsen said Harrah's had an aggressive marketing campaign that cut into Ameristar's revenues in the community, located across the Missouri River from Omaha, Neb.

Ameristar Council Bluffs reported revenues of $42.8 million, down 10 percent from $47.2 million last year.

"We're looking at two or three different options right now in Council Bluffs," Neilsen said. "We'll make a decision soon but we wouldn't start on the project this year. We have several options to evaluate.".

Prior to the opening of the stock exchanges Monday, Morgan Joseph gaming analyst Adam Steinberg raised his price per share on Ameristar to $23, an action that helped send shares of the company up more than 8 percent in trading that day on the Nasdaq National Market.

On Wednesday, shares in Ameristar closed at $18.97, up 9 cents or 0.09 percent. The company announced earnings after the close of trading.

In his note to investors, Steinberg said the value of Ameristar shares, which have plummeted more than 34 percent in the past three months, offer a buying opportunity for investors.

"At current share price levels, based on conservative estimates and a solid balance sheet, we believe the downside potential is limited," Steinberg said.

"Despite near term competitive challenges, we believe investors are overly pessimistic about Ameristar's future profitability," he also said.

Steinberg said hotel expansion projects at both Black Hawk and Ameristar St. Charles outside St. Louis, which are expected to open late next year.

"In our opinion, recent capital projects should begin to deliver positive earnings momentum, while Black Hawk faces easy year-over-year, given the rock slide last year (that shut the main road into the community) and construction disruption at the Ameristar casino," Steinberg said.

In addition to its earnings announcement, Ameristar announced it plans to repurchase up to 2.8 million shares of the company's common stock, representing approximately 5 percent of its outstanding shares. The program will take place over the next three years.

"We believe that our stock at its current price level represents an attractive investment for the company," Neilsen said.

"This program will allow us to opportunistically return capital to our shareholders in a manner we anticipate will have a positive effect on our earnings per share," Neilsen also said.