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Gaming Guru

Howard Stutz

Las Vegas stock index up in April

3 May 2010

LAS VEGAS, Nevada -- Bad news coming from some gaming industry companies during April didn't faze investors.

Six casino operators and three slot machine manufacturers all showed marked upticks in their average daily stock prices during the month with seven of the nine showing double-digit increases.

The stocks are followed by Las Vegas-based business advisory firm Applied Analysis. Its gaming index jumped 11.8 percent to 342.05 points in April, which is 55.8 percent higher than where the index stood in April 2009.

"Valuations in the sector have reached back to levels reported just before the financial market meltdown in the fall of 2008," Applied Analysis principal Brian Gordon told clients in a report Friday. "Additionally, the gaming sector continues to outperform the broader market."

In early April, casino operator MGM Mirage and slot machine maker Bally Technologies pre-announced quarterly earnings, telling Wall Street the figures would be below expectations. In MGM Mirage's case, the company said it was expecting to post a loss of $255 million on CityCenter, which included $171 million in noncash write-downs.

Shares of MGM Mirage traded up 26.4 percent on an average daily basis compared with March. Bally Technologies, which officially reported earnings Thursday, had its shares increase 9.1 percent on an average daily basis.

Gordon said several gaming companies completed significant financing transactions during the month with the proceeds used to refinance existing debt and to extend maturity dates.

"Some transactions resulted in higher overall interest charges, but kicking the can down the road on these obligations provides some breathing room while the domestic operating environment continues to face some challenges," Gordon said.

Wynn Resorts Ltd. and Las Vegas Sands Corp. opened casino expansions in Asia during the month that were well-received in the investment community. Las Vegas Sands opened a portion of the $5.7 billion, 2,560-room Marina Bay Sands in Singapore on Tuesday while Wynn Resorts opened the $600 million 414-room Encore at Wynn Macau on April 21.

Shares of Las Vegas Sands traded 22.6 percent higher in April while shares of Wynn Resorts were up almost 20 percent.

Wynn Resorts' first-quarter earnings, reported on Thursday, highlighted the company's dependence on Macau for the bulk of its quarterly revenues.

Some analysts thought Wynn could still prevail while Las Vegas works through its current operating challenges, which include the opening of CityCenter in December.

"Wynn's management continues to focus on enhancing the company's financial flexibility while delivering a superior product and service without compromising the customer experience," Deutsche Bank gaming analyst Andrew Zarnett told investors. "And that, in our view, will continue to be a strong competitive advantage against its peers in Las Vegas, given the cannibalization existing properties face from the new supply added to the Las Vegas Strip."

The average daily stock price for Pinnacle Entertainment, which canceled plans for a casino expansion in Lake Charles, La., and a resort in Atlantic City, climbed more than 31 percent, the highest in the index.

JP Morgan gaming analyst Joe Greff said the company's new management team is taking the correct steps to refocus the casino operator.

"Pinnacle shares have had a nice run here, but we think there is more to go, as we view Pinnacle as a transition story, whereby it can grow same-store cash flow margins even in a flattish/no-growth revenue environment and grow aggregate cash flow attractively," Greff told investors.