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Casino Stocks Surge

The Las Vegas Sun

LAS VEGAS -- Publicly traded casino companies added nearly $1 billion in market value in the past week, largely because of Boyd Gaming Corp.'s addition to a national index and new orders for slot manufacturers.

The Dow Jones Casino Index closed at 322.6 Friday, up more than 3 percent for the week.

The 60 gambling industry stocks included in the index ended the week with combined market capitalization of $26.8 billion, up more than $800 million compared with the week before and up $11 billion from the low for the year.

Boyd Gaming Corp. and Station Casinos were the only Las Vegas-based gaming operators that outperformed the sector.

"When we look at operators along the Strip, they remained stable week over week. Only the manufacturers and two of the operators were the primary cause of the (stock) appreciation during the week," said Brian Gordon, spokesman for Applied Analysis, a Las Vegas-based financial consulting company.

Analysts said the driving force behind Boyd Gaming was its forthcoming addition to the S&P MidCap 400 Index after the close of trading Monday, replacing business-software provider Legato Systems.

A spokesman for Standard & Poor's, an independent credit rating, risk evaluation and investment research firm, said Boyd met the standards for liquidity, market capitalization and sector representation necessary to fill the vacancy that had been created with the sale of Legato Systems to EMC Corp., an S&P 500 stock.

Industry analysts said Boyd's addition to the index opened the company to a new class of investors and led to a substantial increase in the stock's trading volume. For the week, 4.2 million shares in Boyd Gaming changed hands, more than double the stock's weekly average.

Boyd shares jumped 5 percent Wednesday morning on news reports of the S&P action, closing the day at $14.97 on volume of 1.7 million shares compared with an average volume of 418,000.

BusinessWeek also ran an Inside Wall Street column item last week speculating that Boyd was a potential takeover target and that shares were a bargain based on the company having the lowest price-earnings multiple among major gaming company stocks, a move Gordon said added to interest in the stock.

On the buyout chatter, Boyd Gaming spokesman Rob Stillwell said, "Never say never," although he stressed his company is more interested in buying than selling.

For the week, Boyd shares closed at $15.25, up 6.5 percent for the week and up a sector-leading 320 percent since Jan. 2, 2001.

"The smaller sector of the market, companies such as Boyd and Station Casinos, appear to be the real growth sector of the gaming industry and, to a certain degree, less affected in Nevada than the big Strip guys by Indian casinos in California," Blaylock and Partners analyst Ray Neidl said.

Station shares closed Friday at $33, up 4.25 percent for the week.

Other than Boyd and Station, shares in operators' companies paced the S&P 500 Index, which closed flat for the week at 1039.32. But slot manufacturers' dramatically outperformed the market.

During the week, Harrah's Entertainment announced it would buy 11,000 coinless slot machines from International Game Technology for an undisclosed price, raising IGT's 2004 expected replacement demand to roughly 65,000 machines.

As a result, Merrill Lynch revised its 2004 earnings per share estimates from $1.26 to $1.32 and upgraded IGT to a "buy" from a "neutral" rating.

"We had been concerned that we would see a leveling off of replacement demand in 2004, which we thought would become a concern of investors and limit the valuation awarded the company," Merrill Lynch analyst Dave Anders said.

"However, with the (Harrah's) announcement, the company easily has another four quarters of growth in replacement demand," he said.

IGT shares closed the week at $30.92, up 10 percent from the week before.

Also, Alliance Gaming Corp. posted quarterly results for the three months ended Sept. 30 well ahead of Wall Street expectations based on strong unit sales, despite a slide in net income to $6 million, down 4 percent from $6.3 million a year earlier.

The slippage was caused by a variety of nonrecurring items, primarily refinancing to cut debt costs.

In an advisory to investors, Goldman Sachs analyst Steve Kent said the results support Alliance Gaming's strong position as the No. 2 supplier in the slot market, something investors have been skeptical of because of the re-emergence of WMS Gaming.

And Deutsche Bank analyst Marc Falcone said the company's performance showed its focus on systems and its recent acquisitions are paying dividends.

Alliance shares closed Friday at $23.95, up 13.5 percent for the week.

Shares in WMS Industries, another major slot manufacturer, closed Friday at $25, up 2 percent for the week.

Looking ahead, Blaylock's Neidl urged cautious optimism heading toward the end of the year, given the weak performance of Atlantic City operators over the summer months.

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