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John G. Edwards

Casino Stocks Mostly Unfazed by Latest Terrorism Incident

14 August 2006

Gaming investors saw the foiled terrorist plot to bomb airline flights as a blip on their radar screens Thursday and showed little inclination to reduce their casino stock holdings.

"I don't think it's really had much of an effect at all," said analyst David Katz of CIBC World Markets. Investors have priced the risk of a terrorist attack into gaming stocks, he said.

"This is the new normal. From time to time, we're going to have these incidents," Katz said.

Katz said he's optimistic that the casino industry and shareholders will be rewarded with higher stock prices within several months.

Brian Gordon, a partner at Applied Analysis a Las Vegas research firm, said negative effects of the latest terrorist news on casino stocks was short-lived.

"We saw a little bit of a knee-jerk for some stocks this morning," Gordon said. But most gaming stocks recovered and moved higher for the day, he said.

Gaming stocks showed mostly good results on Thursday, Katz said, noting several unrelated factors affected individual company stocks.

Harrah's Entertainment, for example, got a boost when a judge removed the last legal barrier to a November referendum on an Indian gaming project in Rhode Island, he said.

Harrah's gained $1.03 or 1.74 percent, closing at $60.08.

Stations Casinos got a boost Thursday from a presentation it posted on its Web site Wednesday arguing that the company and its stock are fundamentally strong.

The presentation followed a story a couple of weeks ago in Barron's, the financial tabloid, that suggested Station Casinos' stock performance is tightly tied to the Las Vegas housing market and is poised to fall.

"(Station Casinos argued that its) business is still in good shape. Their company is still in very good shape, and they believe they that their stock is grossly undervalued," Katz said.

Wall Street liked what it heard from Station Casinos and drove its stock price up $1.97 or 3.61 percent to $56.59. MGM Mirage picked up 50 cents, or 1.43 percent, and ended the day at $35.57. Boyd Gaming tacked on 66 cents, or 1.88 percent, and closed at $35.73.

Riviera Holdings Corp., however, slid 10 cents, or 0.49 percent, to $20.16, a slight premium to the $20 buyout offer the company received from International Gaming and Entertainment on Tuesday.

Shares of major hotel chains with global operations also were under pressure Thursday although airlines were getting the brunt of it.

Hilton slipped 2.22 percent to $23.77, while Starwood Hotels & Resorts shares were off 1.98 percent to $51.43 and Orient-Express gave up 0.63 percent to $31.80.

Marriott, after an early dip, ended the day with a gain of 1.14 percent to $35.36.

And Four Seasons, which rolled out higher-than-expected second-quarter numbers early Thursday, gained 3.93 percent to $56.55.

"Demand for luxury travel continues to be very healthy while supply growth in most markets has been minimal, creating a very favorable dynamic in the luxury segment of the lodging industry," the company said in its earnings report.

British Airways PLC was one of the hardest stocks hit because of its heavy exposure to trans-Atlantic routes. Its shares fell 5.1 percent to close at 370.25 pence ($7) on the London Stock Exchange.

U.S. airline shares sold off early but later recovered, with American Airlines parent AMR Corp. closing unchanged at $20.29 on the New York Stock Exchange. Shares of UAL Corp., the parent of United Airlines, fell 1.3 percent to finish at $23.52 on Nasdaq while Continental Airlines fell 1.45 percent to $23.86 on the NYSE.

"(Gaming stocks) have softened in recent months primarily due to speculation of the national economic climate as well as investor profit-taking," Gordon said.

The Dow Jones U.S. Gambling Index soared 28 percent between New Year's Day and May 10, when it hit a high of 622.23. Since then, the index has shed 16 percent. The index gained 4.74 points or 0.92 percent and closed at 522.51 on Thursday.

Katz suggested casino investors keep their holdings in anticipation of a pickup in three to six months when investors gain more confidence in stock projections for 2007.

"We're just taking a little break (in casino stock price appreciation)," Katz said.

Casino gaming revenues are more resilient than casino hotel and restaurant revenues during a recession, Katz said. Las Vegas casinos get about 55 percent of their revenue from casino gambling.

Katz was unconcerned about the 3.47 percent decline in casino gambling hold for Nevada in June.

"Month over month, there will be changes in the hold percentage," Katz said. Casinos do not see much change in the hold on slot machines, but they do see change in the hold on table games and baccarat in particular, Katz said.

Katz focuses more on the dollar amount wagered, and that is up 3.6 percent compared to June 2005. CIBC anticipates low single digit gains in the dollars wagered.

He doesn't consider results for June through August particularly telling, however, "because it's the slow season and it's so hot."

The Associated Press and Bloomberg News contributed to this report.

John G. Edwards
John G. Edwards