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War's Start Helps Lift Casino Stocks

Casino stocks soared this week with the Dow Jones casino index closing at 249, up 11 percent.

That compared with the Standard and Poor's 500 index, which closed at 895.89, up 7.5 percent for the week.

"Gaming stocks benefitted from the euphoria that we finally went to war," said Joe Greff, gaming analyst at Fulcrum Global Partners, an independent Wall Street investment research firm.

Deutsche Bank analyst Andrew Zarnett said it is clear so far that Americans believe the war will be quick and relatively painless, that consumer confidence will return and that there will be increased leisure travel demand as soon as hostilities end.

In addition, Greff said: "Investors had expected a lull in gaming volumes, and in the first two days of the war, we haven't seen anything like that. Fundamentals are at the same level they would be absent the war."

To date, Wall Street data hasn't found significant levels of cancellations or a drop in vacation spending in Las Vegas, Atlantic City or Indiana, he said.

"We are not seeing the proverbial `CNN effect' take hold," Greff said, referring to the past pattern of consumers staying home and watching television programming during the initial phases of crises.

Analysts also said the value of gaming stocks and stocks in general already had been discounted for the outbreak of hostilities in the Middle East and that some investors moved to cover short positions as the market surged.

Harrah's Entertainment led the major gaming stocks, closing Friday at $38.79, up 14 percent for the week.

MGM Mirage increased in price the least, closing at $31.17 for a 2.5 percent gain on the week.

At Deutsche Bank, gaming analyst Marc Falcone said expectations for Las Vegas had been very low coming off a weak January and February.

However, convention business and independent travel were generally stronger even after war broke out than people would have thought in early January, he said.

And there has yet to be a major decrease in reservations, room rates or gaming activity because of the war with Iraq, Falcone said.

Moreover, he said gaming stocks historically have done well in time of crisis even if fundamentals are lagging because investors expect strong and rapid recoveries.

"If you look at post-9-11 and the last war period (in 1991), gaming stocks performed very well," Falcone said.

From June 30, 1990, through October 1990, gaming stocks fell 40.3 percent in value.

From October 31, 1990, through May 31, 1991, the height of the buildup for the first Persian Gulf War, they appreciated 65 percent in value.

And they appreciated another 12 percent over the subsequent 12-month period, according to data prepared by Fulcrum Global Partners, an independent Wall Street investment research firm.

In short, gaming stocks bottomed at the beginning of the war and took seven months to recover from that low point, the Fulcrum report said.

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