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Rod Smith

Gambling Stock Gauge Gallops Forward in October

3 November 2003

LAS VEGAS -- Driven by the resurgent economy and prospects for gaming proliferation, gaming stocks continued to climb in October with the Applied Analysis Gaming Index of local gaming stocks up 2.7 percent for the month.

The monthly weighted average of eight local stocks rose to 194.35 in October, up from 189.27 in September.

For the year to date, the index has climbed more than 30 percent since dropping to 143.63 in January.

Station Casinos was the surprise exception in the final week of the month, with its shares dropping almost 10 percent in value in the middle of the week on investor skittishness over tribal casinos in California and lower earnings projections from the company.

The manufacturing component boosted the Applied Analysis index 9.4 points in October, compared with gaming operators whose share values dragged it down 4.3 points.

All the manufacturers got a boost from expectations of gaming expansion in California and proliferation to new jurisdictions, said Brian Gordon, spokesman for Applied Analysis, a Las Vegas-based financial consulting firm.

Once again, Reno-based International Game Technology's stock performance, up 10 percent from September, drove the overall index upward, he said.

"IGT continued to roll on announcements of increased cashless machine purchases by operators," Gordon said. "In addition to the orders placed by Harrah's Entertainment and Station Casinos, IGT also announced about 5,000 machine purchases that will be accelerated over the next two years."

Operators' earnings reports tended to drive share values, he said.

Park Place Entertainment Corp. beat out other operators included in the index with the largest increase in average value after reporting rising room rates in the West and better-than-expected results in Atlantic City. MGM Mirage's profits dropped, and its fourth-quarter report is expected to show a $4 million hit related to the closure of the "Siegfried & Roy at The Mirage" show. And Station Casinos lowered projections for the fourth quarter, pushing the stock lower in the month's final days, Gordon said.

Deutsche Bank analyst March Falcone said Station Casinos stock took a deep dip this week, closing at $29.75, down 7.6 percent from $29.75, because of concerns about the future of tribal casinos in California. Station manages the Thunder Valley tribal casino in California for the United Auburn Indian tribe.

"Station stock was weak, I think, because of concerns that (Gov.-elect) Arnold (Schwarzenegger) will be tough on Indians with tax negotiations and expansion of more gaming in state," Falcone said.

Schwarzenegger has said he hopes to raise $2 billion in revenue from the gaming industry to help address the state's $38 billion budget shortfall. Analysts, though, are saying the money is more likely to come from slots at tracks and card rooms than expanded tribal gambling, which the new governor has criticized. Still, Falcone said investors overreacted to news out of California.

"We think investors overreacted to guidance provided by management for the fourth quarter," he said. "The conservative fourth-quarter guidance was immaterial relative to a positive outlook for 2004."

At Applied Analysis, Gordon said next quarter's results should provide some additional insight into the performance of Strip resorts in terms of room rates and overall visitor volumes, while IGT is expected to continue its current upward trend.