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Best of Howard Stutz

Gaming Guru

Howard Stutz

Gaming Stocks Showing Strength

1 December 2004

Gaming stocks continued to surge throughout November as investors responded to positive third-quarter earnings announcements and the news of potential new casino development along the Strip, giving shares of several companies double-digit increases in their average daily prices.

Analysts said the trend could continue this month as long as economic indicators remain strong.

The vibrant local gaming marketed benefited Station Casinos, which saw its average daily stock price increase 10.38 percent in November. Station closed at $57.04 Tuesday. Boyd Gaming, which has fully immersed the properties from Coast Resorts into its mix, closed Tuesday at $36.76, an increase slightly above 8 percent for the month.

Brian Gordon of Las Vegas-based Applied Analysis, a financial consulting firm, said Station is benefiting from stable revenue and strong cash flow, as well as significant growth opportunities in Las Vegas and through future management contracts with Indian gaming ventures.

Boyd, he said, is reaping the benefits of its Coast Resorts merger, along with the announcement last week that it had bought the final 13-acre parcel for eventual redevelopment of the 63-acre Stardust site.

"Both Station and Boyd are poised to benefit from growth in the local gaming market," Gordon said. "Station also has developments on the Indian gaming front, with several deals pending that point toward future growth."

The Applied Analysis Gaming Index, a weighted average of local gaming stocks, climbed 7.3 percent from the preceding month to the highest level since its January 1998 debut. .

The average daily price of MGM Mirage stock jumped almost 10 percent in the month, closing Tuesday at $58.30. Gordon said the early November announcement of Project CityCenter, a $4 billion resort, residential, retail and entertainment complex between Bellagio and Monte Carlo, helped boost the company's shares.

"The MGM Mirage announcement, a $900 million expansion at Wynn Las Vegas and the possibility of a Borgata West (at Boyd's Stardust site) continued to show Las Vegas as a vibrant growth market," Gordon said.

Harrah's Entertainment, up 7.31 percent in November, and Caesars, up 6 percent, have climbed because investors are becoming comfortable with the planned merger, Susquehanna Financial Group gaming analyst Eric Hausler said. Caesars announced the sale of Caesars Tahoe in November as the two companies have parceled off parts of their holdings.

Hausler added the Borgata in Atlantic City, a joint venture of Boyd and MGM Mirage, "put up gigantic numbers in October" because of the monthlong workers' strike that affected seven casinos in the market. The resort wasn't one of the properties hit by the walkout.

International Game Technology continued its dominance on the manufacturing side, with its shares increasing 9.13 percent in November. WMS Gaming had the largest increase, climbing 10.24 percent, closing Tuesday at $29.74.

"The bulk of the manufacturers performed relatively well this month," Gordon said. "Elections early in the month proved that gaming expansions are going to take a more conservative path as states try to identify alternative revenue generators."

December will be a tricky month, analysts said. Some investors might view the increased stock prices and take profits before the end of the year, while the traditionally busy New Year's holiday could provide a mixed blessing.

"New Year's Eve falls on a Friday, so the bulk of the action over the three-day weekend will take place in 2005," Gordon said. "The numbers through McCarran International Airport and retail activity remain robust. From a tourism perspective, international travel should increase in frequency as the U.S. dollar weakens, providing foreign visitors with increased purchase power."

Gaming Stocks Showing Strength is republished from