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Howard Stutz

Hurricane Damage, Fuel Costs Cause Gaming Stocks to Slide

3 October 2005

Two major hurricanes that shut down almost two dozen casinos in Louisiana and Mississippi, along with the subsequent increase in gasoline prices, worked to depress the value of gaming stocks during September.

The average daily stock prices of the casino industry's major operators fell between 3 percent and 11 percent during the month, according to the Applied Analysis Gaming Index, a weighted average of nine gaming stocks compiled by the Las Vegas-based financial adviser.

Only MGM Mirage went up during the month, even though the company's Beau Rivage casino in Biloxi, Miss., closed Aug. 29 because of damage caused by Hurricane Katrina.

The average daily stock price of MGM Mirage, which operates 12 casinos on the Strip, rose 2.12 percent in September over August. On Friday, the company closed trading for September at $43.77, up 47 cents, or 1.09 percent.

"Most of MGM Mirage's business is in Las Vegas, and the majority of the economic indicators show healthy market conditions in Southern Nevada," said Brian Gordon, a partner in Applied Analysis.

Hurricane Katrina destroyed or inflicted heavy damage on 12 casinos in the Mississippi communities of Bay St. Louis, Biloxi and Gulfport. A 13th casino, the Hard Rock in Biloxi, had been scheduled to open in September but was destroyed by the hurricane. Katrina shut down four casinos in New Orleans when the city was flooded.

Last weekend, Hurricane Rita damaged six casinos in Lake Charles, La., and the properties remain closed while power and services are being restored to the area.

Hurricane damage to oil refineries in the Gulf Coast caused gasoline prices to skyrocket across the United States, which reduced the discretionary budgets of Americans, Gordon said.

"That will cut into their driving habits and their spending habits, which leads to some uncertainty," Gordon said.

Of the large casino operators, Harrah's Entertainment was the most affected by the hurricanes, with two casinos in Louisiana closed indefinitely while the company's two Grand Casinos in Biloxi and Gulfport were damaged beyond repair.

The average daily stock price for Harrah's dipped 7.83 percent during September, but the company's shares closed the month on a positive, gaining $1.44, or 2.26 percent, Friday to finish at $65.19.

Harrah's is lobbying the Mississippi Legislature to change gaming regulations to allow the company to rebuild its casinos on land rather than having to place the gaming facilities on floating barges moored to the Gulf of Mexico.

While MGM Mirage has said it will reopen the Beau Rivage at its current location, it's unclear what Harrah's will do until there is direction from Mississippi lawmakers.

"Until there's a determination made, it's unclear what the big picture will look like," Gordon said. "Mississippi was the third largest gaming market, and I don't believe the companies will give up on that jurisdiction."

Even companies without casinos on the Gulf Coast were down in September. Las Vegas Sands Corp., operator of The Venetian, saw its average daily stock price dip 7.11 percent during the month, Wynn Resorts Ltd., was off 7.24 percent and Station Casinos fell 3.64 percent.

Boyd Gaming Corp., whose small New Orleans casino closed because of Katrina while operations at its racetrack-casino combination near Lake Charles shut down last week because of Rita, had the largest drop in average daily stock price of the companies tracked by Applied Analysis, dipping 11 percent in September from August. The company closed September on a positive note, gaining 65 cents, or 1.53 percent, at $43.12.

Slot machine manufacturers tracked in the gaming index continued spiraling downward. Alliance Gaming fell more than 16 percent in September from the previous month, while WMS Gaming was off 5.47 percent. Industry giant International Game Technology had an increase of less than 1 percent.

Friday also ended the third quarter for most gaming companies, and Gordon said earnings reports in October may give an indication of how much business disruption was caused by the hurricanes.

"While signs point toward caution, it is important to note a shift of convention business from the Gulf Coast region may spur incremental demand in the Las Vegas market," Gordon said. "Additionally, increased fuel costs may press travelers away from more luxurious leisure destinations, such as Hawaii and international locations, and focus on more cost-effective destinations such as Las Vegas."