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Applied Analysis Index Mirrors Gaming Industry Concerns

9 December 2002

by Rod Smith

LAS VEGAS -- Local gaming stocks' market value generally rose in November, buoyed by an exceptionally strong performance by International Game Technology, the leading manufacturer of slot machines.

The Applied Analysis Gaming Index, a monthly weighted average developed by a Las Vegas-based financial consulting company for following eight local stocks, increased to 228.34, up 42.6 percent from the previous year and up 2.6 percent from the previous month.

"A couple of major operators witnessed declines including Mandalay Resort Group, Harrah's Entertainment Inc. and MGM Mirage," said Applied Analysis spokesman Brian Gordon.

"Uncertainty about tourism and travel and the possibility of war were offset by increases in the price of IGT shares, which were boosted by the anticipated proliferation of gaming in other jurisdictions and the resulting demand for slot machines," he said.

The average daily share price of IGT was up 8.5 percent in November, while the average share price of MGM Mirage was down 3.9 percent. Mandalay Resort was down 7.1 percent, and Harrah's fell 7.5 percent.

However, confidence about the performance of gaming companies in December and early 2003 is slipping, Gordon said.

"There seems to be some tentativeness of international travel because of the threat of military conflict out there right now," he said. "International travelers are leery of pre-booking holidays to Vegas and we're expecting to see some of that trend continue into 2003," Gordon said.

Domestic business is relatively stable, he said, with more cost-conscious consumers driving into Las Vegas instead of flying, which is helping to boost weekend occupancy rates to "respectable levels."

"Typically, we see the first half of November slow and then there is an upswing in activity through New Years," Gordon said.

New Year's weekend should prove a strong indicator of the likely performance of the gaming industry in 2003, he said.

Room rates earned over the holidays also should be strong indicators, Gordon said.

"Room rates are purely supply and demand. The longer you wait in a soft market like this, the better off you are. The slow economy and reduced rates explain room reservations coming in slowly," he said.

Stations Casinos was the strongest performer in the Applied Analysis Index this year, with the weighted daily share price up nearly 90 percent compared with November 2001.

"Their assets are diversified throughout the valley, not just on the Strip. They're offering a premium product for locals at a reasonable cost and the newest, Green Valley Ranch Station, is considered to be upscale by locals who can visit their properties anywhere across the valley," Gordon said.

WMS Industries' shares were the weakest in the past year, down 19 percent, although they recovered 13.6 percent in November despite strong competition from IGT.

"Also of note, Sumner Redstone increased his ownership in WMS during November and it witnessed a jump in its stock price during the same period," Gordon said.

Park Place Entertainment Corp. saw its stock decline 4.1 percent over the past year, but recover 6.9 percent in November.

"Park Place has a lot of brands they are using - Hilton, Caesar's, Bally and Grand (in Mississippi). It may just not be getting the efficiencies some other operators are getting with unified brands. They're spread pretty broad, but they are in the process of streamlining and cutting costs into 2003," Gordon said.

Despite considerable uncertainty about the balance of 2002 and into 2003 because of the threat of military conflict and international travel remaining weak, there is reason for cautious optimism for the coming year.

In November 2002, the Standard & Poor's 500 and the Dow Jones industrial average daily averages increased 6.5 percent and 7.2 percent respectively, while the AAGI was up 2.6 percent.

"We are cautiously optimistic about the outlook for the AAGI, as we expect to see this trend continue into 2003," Gordon said.

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