Station to Speed Red Rock Project

LAS VEGAS -- Based on a strong belief the Las Vegas market will continue to be a vibrant source of revenue, Station Casinos announced Tuesday it will accelerate its expansion plans for the second phase of Red Rock Station, increasing the overall cost of the Summerlin project to $800 million.

Also, the company told Wall Street investors and analysts that its Las Vegas Valley properties were having an exceptional first quarter, leading executives to up its earnings per share guidance.

The double shot of positive news sent shares of Station Casinos to an all-time high Tuesday while carrying the stock prices of some of its gaming sector competitors along for the ride.

"We've had a very good January and February and, knock wood, March is also starting out strong," Station Casinos Chief Financial Officer Glenn Christenson said.

Station's optimism for January contrasted sharply with more downbeat casino industry reports related to the month.

Gaming win on the Strip during January was up less than 1 percent from the previous year. Mandalay Resort Group said its revenue were off 28 percent because of poor results in the month, related partly to record rainfall in Las Vegas and Southern California.

In a statement, Station Casinos said its earnings per share for the quarter will be between 66 cents and 68 cents when it announces its results next month. Previously, Station Casinos said it would earn between 56 cents and 62 cents a share.

The average estimate of analysts polled by Thomson First Call had been 60 cents a share. In the first quarter of 2004, Station Casinos earned 51 cents per share.

The company had estimated revenue growth at its wholly owned Las Vegas operations would be between 9 percent and 13 percent. It is now saying revenue will be in the upper end of that prediction.

Also, Station Casinos said Green Valley Ranch would generate between $26 million to $27 million in earnings for the first quarter based on an anticipated 39 percent to 43 percent climb in revenues at the Henderson property.

"The locals market in Las Vegas continues to grow, and our strategic decision to focus on that market has proven to be an exceptional return on our investment," Christenson said.

Bear Stearns gaming analyst Joe Greff, while raising his price target for the company's stock, said in a note to investors: "(Station Casinos) remains the best growth story with the most visibility among the gaming operators with attractive supply-demand dynamics in the locals market."

Station Casinos' stock price reached a high $69.37 cents Tuesday before closing at $68.92, up $7.38 or 11.99 percent. More than 3.2 million shares of the company's stock traded hands during the session, almost eight times the average daily volume.

Boyd Gaming Corp., the company's chief competitor for the Las Vegas locals market, also increased on the news, closing at $57.40, up $3.80 or 7.09 percent.

Other Las Vegas gaming companies buoyed by Station Casinos' announcement were MGM Mirage, closing at $77.04, up $3.23 or 4.38 percent, and Las Vegas Sands Corp., closing at $49.40, up $1.93 or 4.07 percent.

The Red Rock Station expansion announcement surprised some analysts because the project's first phase is about a year away from completion. Company officials expect the second phase -- which will double the capacity of the under-construction hotel tower while adding other amenities -- to begin later this year.

When completed, Red Rock Station will have 850 hotel rooms, nine restaurants, a nightclub and private pool area, and a 16-screen movie theater.

The $800 million price also raised a few eyebrows.

"While we are confident that Station Casinos can achieve its historical returns on invested capital, particularly with Red Rock Station given the strong demographics of the Summerlin area, we are a bit surprised at the overall price tag for a locals casino development," Deutsche Bank gaming analyst Marc Falcone said in a note to investors.

Christenson said the timing for the expansion, which will be paid for through cash flow and the company's $1 billion line of bank credit, was based on the growth of the Las Vegas market, particularly the expanding customer base in Summerlin.

"Almost every time we've developed one of our projects, questions have been raised he said. "We've always exceeded expectations, and we're comfortable that will happen once again."