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Best of Howard Stutz

Gaming Guru

Howard Stutz

Debt crisis worries gaming stock investors

4 June 2012

Gaming stocks nosedived in May as investors grew worried over foreign debt matters and mixed messages coming from company earnings reports.

Of the 12 publicly traded casino operators and gaming equipment providers followed by Las Vegas financial adviser Applied Analysis, 10 saw decreases in average daily stock price during the month.

Only the share prices of regional gaming operators Ameristar Casinos and Penn National Gaming, which owns M Resort, enjoyed slight increases.

When compared with May 2011, the gaming sector was off 11.6 percent while the broader market edged slightly upward by less than 1 percent.

The declines sent the Applied Analysis Gaming Index tumbling almost 61.5 points, to 435.74. The index accounts for more than 300 market variables and economic indicators.

Applied Analysis principal Brian Gordon said the disappointing initial public offering by social media giant Facebook did not have an effect on the gaming sector. Facebook opened for trading at $38 a share on May 18 on the Nasdaq Global Select Market but has since tumbled, closing at $29.60 Thursday.

"While the Facebook IPO reportedly created issues at Nasdaq and created significant buzz in the investment community, gaming sector stocks generally remained tied to market fundamentals and investor speculation," Gordon said. "Gaming stocks have generally been challenged in recent days with international economic concerns persisting and other external factors."

Investors, Gordon said, have been focused on gaming expansion. In May, Caesars Entertainment opened a casino in Cleveland, while Penn National opened Ohio's second casino on Tuesday, in Toledo.

Las Vegas Sands Corp. and Wynn Resorts Ltd. both said they wouldn't bid on a casino license in Massachusetts.

"Expansion opportunities in emerging markets for selected operators were made clearer," Gordon said.

Meanwhile, Boyd Gaming Corp.'s announcement that it would spend $1.45 billion to acquire regional casino operator Peninsula Gaming, which has casinos in Kansas, Iowa and Louisiana, is being viewed as a foreshadowing event.

"The sector also witnessed key acquisitions in regional markets as operators look to expand their footprints when opportunities present themselves," Gordon said.

The four gaming manufacturers followed by Applied Analysis experienced declines in average daily stock price. But slot machine makers received good news Wednesday when an Ohio judge through out a legal challenge, paving the way for the state's seven racetracks to add casinos with a cumulative 17,500 video lottery terminals.

"The obvious winners are the slot manufacturers," Janney Montgomery Scott gaming analyst Brian McGill said. "[Ohio] will give a much needed boost to the calendar of openings in 2013 and 2014. There is a lack of new openings in both years."

Caesars, Penn National and Pinnacle Entertainment own four of the seven racetracks.

"Yesterday's favorable outcome is also positive for a handful of casino operators," Roth Capital Partners gaming analyst Todd Eilers told investors.