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Howard Stutz

Gaming stocks down for the month, up for 2009

4 January 2010

LAS VEGAS, Nevada -- December wasn't the best of months for the publicly traded gaming companies.

But compared to where their stock prices stood a year ago, 2009 turned out to be a rebound year for most of the sector.

The average daily stock prices of the seven casino companies and three slot machine manufacturers charted by Las Vegas-based financial consultant Applied Analysis all fell in value during December when compared to November.

However, when looking at the average daily prices at the end of 2008, eight of the nine companies significantly increased their price per share.

Three companies -- Bally Technologies, Ameristar Casinos and Las Vegas Sands Corp. -- saw their average daily price per share climb more than 100 percent between December 2009 and December 2008. The stock price of Boyd Gaming Corp. was up almost 92 percent during that same time period.

The average daily share price of Las Vegas Sands was up more than 171 percent during the 12 months, the biggest increase of any gaming company.

Only MGM Mirage, which opened the $8.5 billion CityCenter development in December, saw its average daily price per share slip in the past 12 months with the company's stock value down 17 percent compared with December 2008.

Applied Analysis principal Brian Gordon, in a report to clients, said the gaming industry struggled in 2009 and will face similar battles over the next 12 months.

"The operational aspects of the gaming and tourism industry will remain challenging, while debt loads and corporate structures will require continued creativity and flexibility on the part of financial institutions," Gordon said. "While valuations have spiked for most, others will seek to escape from under the debt overhang and associated covenants. This dynamic may not play out well for all, but the environment beyond 2010 should benefit most."

During December, the average daily price per share in the gaming sector was down anywhere less than 1 percent to more than 6 percent when compared with November.

The declines caused the Applied Analysis index to close at 286.18 for the year, down 1.7 percent compared with November, but up nearly 25 percent over the past 12 months.

Gordon said the gaming industry in Las Vegas is faced with room capacity issues. Since November, the openings of CityCenter and hotel expansions at the Hard Rock, Golden Nugget and Planet Hollywood have added about 7,200 rooms to the crowded market, bringing Las Vegas's total inventory to more than 148,000 rooms.

Several projects, such as Boyd's Echelon development and a hotel expansion at Caesars Palace, were either stalled or halted.

Gordon said the industry is developing strategies to fill its existing hotel rooms.

"While pricing has functioned more like an on-off release valve to fill rooms during the past 12 months, operators will attempt to control pricing more like an air pump, to provide the right amount of pressure given the weight of market demand during the next 12 months," Gordon said.

If convention and business travel, which has suffered in the past year, returns to more normal conditions, Gordon thought it will be easier for the gaming industry to deal with bargain-shopping leisure travelers.