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Best of Howard Stutz

Gaming Guru

Howard Stutz

Gambling stocks down again in November

1 December 2008

LAS VEGAS, Nevada -- Investors in gaming stocks are glad only one month remains in 2008.

Despite some end-of-the-month upticks in the stock markets as a whole, November was another downward slide for gaming.

Nine out of the 10 casino operators and slot machine manufacturers charted by Las Vegas-based business advisory firm Applied Analysis showed month-over-month declines in their average daily stock prices. Only casino operator Penn National Gaming reported an increase.

Applied Analysis principal Brian Gordon said the company's gaming index hit its lowest level since January 2004. The index closed the month at 225.91, down almost 37 points from October and down more than 360 points from a year ago.

Consumers have been overwhelmed by uncertainty in the global economic climate, volatile financial markets, slipping housing market conditions and an unstable employment outlook. Those indicators have soured investors on gaming.

"Many gaming operators witnessed all-time lows in their stock prices while concerns about the viability of selected operators persisted," Gordon said.

"By the close of November, the majority of gaming companies reported valuations that were 70 percent to 90 percent below levels reported just one year ago. These factors and a tight capital market have investors responding cautiously," he added.

The major casino operators, MGM Mirage, Las Vegas Sands Corp., Boyd Gaming Corp. and Wynn Resorts Ltd., all had double-digit declines in their month-over-month daily price averages.

Even Las Vegas Sands, which raised roughly $2.1 billion in a recapitalization plan and reduced its capital expenses by stopping construction of several Macau casino projects and a Strip condominium tower, didn't gain in its average daily stock price during November.

Penn National benefited because investors like the company's balance sheet. An aborted private-equity buyout attempt left the company with about $1.48 billion in cash gained through a breakup fee.

At the recent Global Gaming Expo, Penn National Chief Financial Officer Bill Clifford said the company was looking at opportunities to acquire casinos, including potential sites on the Strip. But the company is in no hurry to make a purchase.

G2E also allowed slot machine makers, which have also seen hefty declines in their stock prices in 2008, try to impress casino operators with new games and systems.

Macquarie Capital gaming analyst Joel Simkins said in a research note that Penn National and slot machine manufacturers Bally Technologies and WMS Industries may still be attractive to investors.

"Most gaming stocks have been punished this year, with the group down a collective 75 percent year to date," Simkins said.

"We think investors must continue to be very cautious before adding to current positions or initiating investment. We remain particularly bullish on those (companies) with strong balance sheets," he also said.

Simkins said he spent about five days in Las Vegas, touring some of the new properties including the recently opened Eastside Cannery and Aliante Station. He said the market is reflective of the companies souring stock prices.

"While one week does not make a trend, the tone in and around the Las Vegas Strip, as well as the locals segment, was bleak," Simkins said.

"Las Vegas has clearly slowed down considerably and we remain greatly concerned about rising unemployment, daunting condo supply, new capacity growth, lower room rates and a potential dramatic decline in hotel occupancy," Simkins added.

Gambling stocks down again in November is republished from