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Rod Smith

Gaming Industry: Gaming Stocks End Slide

5 September 2006

NEW YORK -- A gaming stock index rose modestly in August as excitement over next week's opening of Wynn Macau pulled the group out of a sharp three-month slide.

The Dow Jones U.S. Gambling Index, a Dow Jones & Co. industry index of 64 publicly traded casino companies, closed at 547, up 4.2 percent from 525 at the end of July.

Leading the increase were Wynn Resorts Ltd. and Las Vegas Sands Corp., which are both pioneering casino operations in Macau. The $1.2 billion Wynn Macau opens Wednesday.

Wynn closed the month at $77.41, up 20.9 percent from $64.01 a month earlier. Las Vegas Sands closed at $69.81, up 12.5 percent from $62.03 at the end of July.

Among major Las Vegas-based gaming companies, Station Casinos led the national index, closing the month at $58.25, up 6.2 percent from $54.86 a month earlier.

Also in August, gaming stocks returned to their traditional role of outpacing the Standard & Poor's 500 Index, this time by 2-to-1.

The S&P closed the month at 1,303.82, up 2.1 percent from 1,276.66 at the end of July.

Deutsche Bank analyst Bill Lerner said the earlier doldrums stemmed from weak earnings reports for the 2006 second quarter.

"Heading into the Wynn (Macau) opening, there's some new excitement that's provided a bit of a lift for the stocks, post-second quarter," he said.

Lerner also said there has not been much better news on consumer confidence or consumer spending, but there hasn't been much bad news, either, so fundamentals have not been affecting gaming stock prices.

Matthew Jacob, senior gaming analyst with Wall Street-based Majestic Research, said shares also got a boost from Wynn on reports that its Las Vegas property, Wynn Las Vegas, put in a much stronger performance in July than earlier in the year.

"July and August (metrics) sequentially seem to be a little better, which means the impact of consumer confidence may not be long term," he said.

Jacob said the three-month slide had been caused largely by investor concerns about the health of the consumer and the effect that might have on gaming issues.

Brian Gordon, a partner in the Las Vegas-based financial consulting firm Applied Analysis, said local gaming company stocks are stabilizing after three months of profit-taking and price declines.

The Applied Analysis Gaming Index, a weighted average of nine Nevada-based gaming companies, closed August at 337.06, down 16.3 points, or 4.6 percent, from July. Nevertheless, the index was 10.2 percent ahead of where it stood a year ago.

Gordon said that the stocks tumbled in the first half of the month but regained ground in the latter half.

"A large segment of the recent declines was attributable to profit-taking and investors now see opportunities and upward potential in pricing. They're checking out opportunities," he said.

The Applied Analysis Gaming Index consists of Bally Technologies, Boyd Gaming, Harrah's Entertainment, International Game Technology, Las Vegas Sands, MGM Mirage, Station Casinos, WMS Industries and Wynn Resorts.

"Despite the overall decline in the index, six of the nine gaming companies posted stock prices (by the end of the month) ahead of where they started the month, a signal that declines may be flattening," Gordon said.

Gordon also said industry fundamentals remain strong, despite recent market-driven investment strategies. Therefore, the gaming industry should remain strong for the rest of the year as long as the national and international economic climates remain stable, he said.

However, a return to the double-digit growth of early 2006 is unlikely, Gordon said.

Although analysts remain generally optimistic about the rest of the year for gaming stocks, Jacob pointed out that individual companies still face challenges.

For example, he said investors are still concerned about long-term prospects for Boyd Gaming Corp.'s proposed $4 billion Echelon Place, which it plans to build on the site of the Stardust.

There are also uncertainties around redevelopment plans Harrah's Entertainment may announce later this year for its properties on the east side of the Strip -- Harrah's Las Vegas, Imperial Palace, the Flamingo, Bally's and Paris Las Vegas, Jacob said.