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Best of Howard Stutz

Gaming Guru

Howard Stutz

Casino-stock index declines during January

4 February 2008

LAS VEGAS, Nevada -- Downward pressure, brought about by decreased revenues in some gambling markets and shaky investor confidence, continued to affect the average daily stock prices of gaming companies in January.

Four of the eight casino operators tracked by Applied Analysis, a Las Vegas-based financial consulting firm, suffered better than 23 percent declines in their average daily stock price during the month compared with December. The shares of two other companies traded down more than 10 percent.

The month played havoc on the Applied Analysis Gaming Index, which also includes three slot-machine manufacturers. The index fell 89.2 points to 480.49, a 15.7 percent decline.

"The gaming sector posted a bigger downturn in valuations when compared to the broader market's drop of 6.8 percent," Applied Analysis principal Brian Gordon said Friday.

Some gaming analysts viewed January's decline in the gaming sector as a buying opportunity for investors.

Macquarie Capital gaming analyst Joel Simkins said in an investors note Friday that the lower price per share of some gaming companies may influence some operators to buy back their shares to help inflate prices.

"In our view, potential insider buying activity could be a net positive and we would not be surprised to see more aggressive repurchasing activity either initiated or expanded by several operators, given excess free cash," Simkins said. He said stock acquisitions by foreign entities, such as the recent investment by the Persian Gulf state of Dubai's business arm into MGM Mirage, could also increase.

"(It's) indicative of continued interest in the sector from non-traditional investors," Simkins said.

The stock prices of gaming companies with holdings in Macau suffered during January.

Las Vegas Sands Corp. shares averaged $84.39 in January, down 25.1 percent from December. Shares of MGM Mirage traded almost 17 percent below their average daily price in December. Meanwhile, shares of Wynn Resorts Ltd., although still trading in triple digits, were off almost 11 percent in January.

Deutsche Bank gaming analyst Bill Lerner said Friday that investors concerned about the Macau gambling market may have received some good news. Media reports out of the Chinese gaming enclave said casino revenue in Macau was up 67 percent in January compared to a year ago, following a 48 percent increase in November and a 34 percent climb in December.

Lerner said the market gained because of the August opening of the $2.4 billion Venetian Macau and the December opening of the $1.25 billion MGM Grand Macau.

"We view these results as positive, and may restore confidence in the potential growth of the Macau market," Lerner said.

The analyst added 2008 should be a year with little expansion in Macau, allowing the market to absorb the new casinos that were opened in 2007.

Shares of Ameristar Casinos averaged 23.26 percent less than they did in December while shares of Pinnacle Entertainment fell 25.82 percent during the month. Neither company, although based in Las Vegas, operates a casino on the Strip.

In November, Nevada casinos reported a 14.1 percent decrease in total gaming revenues while Strip casinos saw their gaming revenues decline more than 19 percent.

Gordon thought quarterly earnings reports from the major casino operators could give a clearer picture of the gaming industry's standing. Las Vegas Sands will report earnings Monday.

Year-end earnings reports that are slated to start rolling in during February should provide additional insight to the sector's performance and management's expectations for 2008," Gordon said.