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Best of Howard Stutz

Gaming Guru

Howard Stutz

MARKETPLACE: Big plunges and small gains

2 April 2007

LAS VEGAS, Nevada – For the second straight month, the stock performances of two gaming operators threw a blanket over the sector.

During March, Wynn Resorts Ltd. and Las Vegas Sands Corp. had the highest decreases in their average daily stock prices of any of the nine companies tracked by Las Vegas-based financial consultant Applied Analysis when comparing the results from February.

The 8 percent decrease by Las Vegas Sands and the 10 percent drop by Wynn Resorts, coupled with a nearly 8 percent dip by slot maker International Game Technology, sent Applied Analysis' monthly index to its biggest drop ever, 29.1 points. The index finished at 465.13.

Applied Analysis partner Brian Gordon blamed investor profit-taking and questions about the expanding Chinese gaming market as two reasons for the downturn.

"The sector is coming off a huge peak from a few months ago," Gordon said Friday. "Investors are collecting their profits. Investors are also still evaluating the Chinese marketplace. Clearly there is significant demand in that market, but just how much supply is needed and when it will come about are two big questions."

Las Vegas Sands, Wynn Resorts and MGM Mirage are the biggest U.S. gaming companies operating casinos or building resorts in Macau.

Las Vegas operates the Sands Macau and is opening the $2.4 billion Venetian Macau this summer. It also is building eight hotel-casinos with well-known hotel operators on the region's Cotai Strip. Wynn opened the Wynn Macau last fall and is unveiling an expansion this summer. Meanwhile, MGM Mirage is expected to open the $1.1 billion MGM Grand Macau by the end of the year.

Deutsche Bank gaming analyst Bill Lerner said recent talk by the Chinese government about slowing the economy in the country cast a pall over Macau in some American investors' eyes. He said there is panic in the market for any business with Chinese exposure when news floats out of the region.

"It isn't a shock when you see hyper growth, such as you have in Macau," Lerner said. "We can make the argument on why companies in Macau are insulated from any economic concerns, but the market doesn't want to hear it."

Analysts said Wynn Resorts and Las Vegas Sands are affected more by negative Chinese business news than MGM Mirage. Wynn and Sands each operate just one casino on the Strip, while MGM Mirage has 10 Strip resorts. Shares of MGM Mirage were down on an average daily basis by 3.6 percent in March in comparison with February.

"For the large-cap companies, they all get thrown in the same boat together," Lerner said. "It's pretty much guilt by association."

Shares of Wynn averaged $95.14 during the month, the highest of any gaming company. Sands' share averaged $87.07, while MGM Mirage closed the month with an average daily price of $68.72.

Gordon said there was little news during March that would have affected the industry.

"(For) local gaming operators, fundamentals remain relatively stable, with the residential market's performance playing a key role in overall consumer behavior patterns and possibly the rate of population expansion," Gordon said. "Watch for the housing market's impacts to continue to be heard through the end of 2007."

While shares of IGT dropped, averaging $39.90 in March, the shares of two other equipment makers increased. WMS Industries averaged $39.10 in March, a nearly 1.9 percent jump, while rebounding Bally Technologies showed a 13 percent increase, averaging $23.17 on a daily basis.

MARKETPLACE: Big plunges and small gains is republished from