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Howard Stutz

Gaming stocks drop in February

1 March 2010

LAS VEGAS, Nevada -- February wasn't the gaming sector's finest month.

Investor concerns surrounding Las Vegas sent the average daily stock prices of seven publicly traded casino operators and slot machine manufacturers all down during the month.

Las Vegas-based advisory firm Applied Analysis, which charts the companies for a gaming index, said the industry's stock prices are still up anywhere from double or triple their value from February 2009.

"Not unlike historical cycles, the gaming sector outperformed the broader market on both the ups and downs," Applied Analysis principal Brian Gordon told the firm's clients in a research report.

During February, the gaming index finished at 285.91 points, a decline of 12.32 points over January.

All of the major casino operators and slot machine makers -- except Boyd Gaming Corp. -- announced quarterly earnings during the month, which may have garnered an adverse response from stockholders.

"Quarterly earnings reports for major operators played a role in investor activity and pricing," Gordon said. "Generally, gaming operators managed to hold the line between actual results and expectations, after accounting for revenue shifts within some company asset groups."

Wall Street has been somewhat critical of the regional gaming markets in recent months. In January, shares of Penn National Gaming were off 17.2 percent on a daily average while share of Pinnacle Entertainment traded down 14.42 percent. Boyd Gaming shares were down almost 8 percent on a daily average.

Goldman Sachs gaming analyst Betsy Gorton released a monthly tracking report on the regional markets, saying she was concerned that short-term pressures from unemployment, and longer term from new competition, will hamper results for some operators.

Tuesday's announcement that Wynn Resorts Ltd. has become involved with a stalled casino project in Philadelphia was not good news for the competition. Gorton said the project, which could open by next year, could steal market share from Penn National and Las Vegas Sands Corp. in Pennsylvania and from the Borgata in Atlantic City, a joint venture between Boyd Gaming and MGM Mirage.

"We view this as a negative for the existing operators in the region," Gorton told investors. "It shows that given the low likelihood near term for additional development in Las Vegas, casino operators broadly will be competing for these new development opportunities in new regional markets."

The average daily stock prices of the three Las Vegas-based casino companies in Macau -- MGM Mirage, Wynn Resorts and Las Vegas Sands -- fared better than their regional market counterparts during February, but were still down between 4 percent and 6 percent each.

"Operators with significant investments in Macau demonstrated demand continues on the other side of the world, while Las Vegas continues to face near-term challenges," Applied Analysis' Gordon said. "Additionally, concerns about Las Vegas' convention demand profile continues to raise questions and interest on the part of investors."

Advance convention bookings were topics discussed during fourth-quarter earnings reports by both Las Vegas Sands and MGM Mirage.

Las Vegas Sands officials said 2010 may outpace 2009. MGM Mirage executives said the company's convention business is recovering. Bookings are up and 2010 room rates associated with those meetings are back to 2005 levels. Booking for 2011 are headed toward 2011 room rates.

However, Gordon said, "The group business represents only a modest share of total room bookings for MGM Mirage, representing less than the 16 percent share reported during the 2007 peak."