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Gaming Guru

Rod Smith

Gambling and Wall Street: Casino Stocks Lose Steam in April

2 May 2005

Gaming stocks stalled in April, the result of overpricing earlier in the quarter following earnings preannouncements and broad market doldrums, analysts said Friday.

The Applied Analysis Gaming Index, a weighted average of 10 local gaming stocks compiled by the Las Vegas-based financial consulting firm, dropped to 301.04 in April, down 6.5 percent from 320.77 in March.Advertisement

Applied Analysis partner Brian Gordon said strong first-quarter financial performances for the industry prompted profit-taking and dampened gaming values in April.

It was the second straight month of declining gaming stock values after seven months of uninterrupted increases.

Susquehanna Financial Group gaming analyst Eric Hausler said gaming stocks enjoyed a good run into March, but weakened after the preannouncement season.

He said an overall market malaise may have contributed to the drop in the index.

"There's a fear about the economy right now and its status, how fast it's growing or whether it's slowing," he said. "And certainly that pressured gaming stocks in particular, but also affected all the discretionary consumer names so we had some rotation of capital and flight out of high-flying groups like gaming."

Deutsche Bank analyst Marc Falcone agreed spillover from general market concerns, rather than industry-specific issues, affected gaming stocks.

"We're seeing strong earnings from every company, but the stocks are not responding," he said.

Besides general economic conditions, Falcone and Bear Stearns gaming analyst Joe Greff said profit-taking has also knocked share prices down because investors wonder how much room there is for improvement in gaming stocks, which have appreciated 140 percent on average over the past five years.

Greff said the opening of Wynn Las Vegas has left investors particularly concerned about near-term developments on the Strip, especially competition between Wynn Resorts Ltd. and MGM Mirage.

Wynn Resorts closed Friday at $52.94, down 21.8 percent from $67.74 at the end of March. MGM Mirage closed Friday at $69.81, down almost 1.4 percent from $70.82 at the end of March.

"It's more sentiment-driven than a function of fundamentals. Traditionally, though, gaming stocks have sold off right after a major casino opening," Greff said.

By comparison, Gordon said he expects a strong performance from Wynn Las Vegas in its first two months of operation and is more interested in long-term results than short-term whimsy.

Major casino company operators' shares all fell short of their 52-week highs hit earlier in the year, but manufacturers Alliance Gaming Corp. and International Game Technology experienced some recovery.

For April, the Dow Jones U.S. Gambling Index dropped to 441.08, down almost 4 percent from the previous month.

Industry leaders for the month were Alliance Gaming, closing at $11.40, up 18.9 percent from $9.59 at the end of March; and International Game Technology, closing at $26.89, up 0.9 percent from $26.66 a month earlier.

Trailing the pack were Station Casinos, closing at $64.53, down 4.5 percent from $67.55 a month earlier; WMS Industries, closing at $25.40, down 9.8 percent from $28.16; Las Vegas Sands Corp., closing at $45, down 16.8 percent from $37.45 at the end of March; and Wynn Resorts.

Gaming companies may start slowly next month, Gordon suggested. He said concerns over the national economy are depressing expectations for leisure travel and consumer spending.

Applied Analysis dropped Mandalay Resort Group from the index following its sale to MGM Mirage.

Also in April, it added Boyd Gaming Corp., which bought Coast Casinos last year; Las Vegas Sands, now that it is publicly traded; and Wynn Resorts, following the opening of Wynn Las Vegas.

The index had already included Alliance Gaming, Caesars Entertainment, Harrah's Entertainment, IGT, MGM Mirage, Station Casinos and WMS Industries.

Applied Analysis plans to drop Caesars Entertainment from the index once its sale to Harrah's is completed.