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Rod Smith

Analysts: Gaming Stocks Continue to Climb

2 October 2003

LAS VEGAS -- Driven by the recovery in leisure travel, gaming stocks continued to climb in September with the Applied Analysis Gaming Index of local gaming stocks up more than 5 percent for the month.

The monthly weighted average of eight local stocks rose to 189.27 in September, up from 180.14 in August.

For the year to date, the index has climbed almost 30 percent since dropping to 146.83 in January.

The Dow Jones Casino Index increased 4.4 percent in September to close the month at 308.86.

The sector was led by high expectations for slot machine manufacturers heading into last month's Global Gaming Expo, said Brian Gordon, spokesman for Applied Analysis, a Las Vegas-based financial consulting company.

Increasing room rates and strong convention business also drove fundamentals upward for major Strip operators. Analysts are optimistic trends will continue and improve through the end of the year.

"Operators attribute pricing power to better leisure volumes than last year," said Joe Greff, gaming analyst at Fulcrum Global Partners, an independent Wall Street investment research firm.

"We believe Las Vegas' appeal to value conscious consumers and the fact that some vacation travelers are substituting domestic trips to markets like Las Vegas for international travel are driving the volume gains," he said.

In addition, Greff said, a strong events and convention calendar has helped drive demand to the Strip and has made predictions more reliable.

The manufacturing component of the Applied Analysis index increased 4.1 percent, accounting for the bulk of the Applied Analysis appreciation.

"During the month, Las Vegas hosted the annual Global Gaming Expo where the manufacturers showed off the latest products and systems," Gordon said.

Reno-based International Game Technology, the world's largest slot manufacturer, also increased its quarterly cash dividend as well as announcing its new cast of slot machine characters, he said.

These factors led IGT's index value to keep climbing, up 9.6 percent compared with August, and its stock closed at $28.15 per share at the end of the month, Gordon said.

"Also during the month, a number of gaming operators indicated that third-quarter results will be in line with or above expectations," Gordon said.

While increasing in value, casino operators' shares in the index increased just under 1 percent during September.

Mandalay Resort Group led in share appreciation among operators with its contribution to the Applied Analysis index up almost 10 percent. Strong room sales and the anticipated opening of its new tower, The Hotel, in November were credited. MGM Mirage, which announced increased earnings guidance in early September for the quarter, posted the second highest gain among operators at 5.5 percent.

"It will be interesting to see how much the (Oscar) De La Hoya-(Shane) Mosley fight will contribute to their results," said Gordon, referring to a world championship bout held Sept. 13 at the MGM Grand Arena.

Another broad indicator of increasing demand were July gaming revenue figures for the Strip, which were up 7 percent from the previous year, Gordon said. Visitor volume was up 5.7 percent for the year, he added.

Among individual operators, Harrah's Entertainment put in the softest performance, with its contribution to the index down 1.4 percent in September compared with August.

"Its diversified asset base contributed to that. While many of the operators have a focus in Las Vegas, Harrah's is more spread out and is impacted less by economic indicators in Southern Nevada," Gordon said.

Analysts were more optimistic about the remainder of 2003 for the Las Vegas market.

"We see Las Vegas as a market with good demand momentum in the next six months based on the results of our recent room rate surveys, as well as conversations with operators, and remarks from the G2E," Greff said.

Deutsche Bank analyst Marc Falcone added that "it remains fairly evident that the strong room rate trends experienced by many Strip operators, particularly in the upscale operators, during the third quarter are spilling over into the early portion of the fourth quarter."