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Rod Smith

Gaming Stocks Increase Slightly

1 March 2006

LAS VEGAS -- Wall Street gave gaming stocks mixed reviews in February, with the Dow Jones U.S. gambling index closing at 531.99, up just more than 1 percent for the month.

By comparison, the Standard & Poor's 500 Index closed at 1280.66, up just less than 1 percent for the month.

Among individual companies, however, performance was as scattered as buckshot, with Las Vegas Sands Corp. up 12 percent at the head of the pack, closing at $53.35; Wynn Resorts Ltd. up 10 percent, closing at $66.45; and Boyd Gaming Corp., down 6 percent for the biggest loss among operators, closing at $43.73.

Brian Gordon, a partner in the Las Vegas-based financial consulting firm Applied Analysis, said the gaming industry's varied performance stemmed from investors' sophisticated take on the positions of each of the companies.

"We had two operators that benefited from expectations abroad. Simply put, the complexity of the different operators is currying different levels of interest from investors," Gordon said.

The Applied Analysis Gaming Index, a weighted average of nine Nevada-based gaming companies, closed at 324.88, up 13.6 points, or 4.4 percent, from January. When computed on a similar weighted average basis, the S&P was down 0.2 percent for the month.

Compared with February 2005, the Applied Analysis index was down 0.4 percent while the broader market was up 6.4 percent, Gordon said.

"The performance represented the fourth consecutive month of gains that ended a downswing caused by uncertainty surrounding the hurricane season that impacted gaming operators entering the fourth quarter," Gordon said. "The majority of Las Vegas Strip operators posed gains, particularly those with heavy interests in the Chinese gaming market."

The Applied Analysis Gaming Index includes Alliance Gaming Corp., Boyd Gaming, Harrah's Entertainment, International Game Technology, Las Vegas Sands, MGM Mirage, Station Casinos, WMS Industries and Wynn Resorts.

Fourth-quarter earnings reports released during the month showed the gaming industry was performing well, especially for casino companies with operations centered on the Strip, Gordon said.

The strength of Las Vegas Sands' and Wynn Resorts' shares, which were up substantially, were a result of the carryover in investor interest stemming from reports of rapid growth in the Macau market, he said.

University of Nevada, Las Vegas professor Bill Thompson, who specializes in gaming studies, said Macau drove the upward pressure on gaming stocks.

"The performance out of Macau for the first year were historic and Wynn Resorts, following Las Vegas Sands, which opened a casino there last year, still gets in on the ground floor," he said.

Gordon said gaming equipment makers also contributed to increases in average gaming industry stock prices.

"Expectations of gaming expansions suggest additional demand for equipment exists," he said.

Gordon said Boyd Gaming, whose stock was down substantially in February despite strong earnings in the fourth quarter of 2004, continued to reel from investor jitters caused by the January announcement of its $4 billion mixed-use Echelon project, which is slated to open in 2010 on the site of the Stardust.

"There was nothing else to it really, just a process of understanding the project's scope and the company's capacity," he said.

Thompson saw historic parallels in the performance of Boyd.

"It's like we say with its previous announcements to build the Stardust tower years ago and, more recently, the Borgata in Atlantic City," he said. "It might not matter. After all, Boyd has mastered developments well, whether it was in Mississippi or New Jersey. Everything they've done has been successful."

Wall Street investors have simply been in a mood to look for developments about which to be jittery, he said.

"And the fact is, that can affect the gaming industry more than other sectors. Gaming is one group the threat of terrorism can really hurt. General Electric will still be going if there's another attack, but Las Vegas would be affected as if it were a hurricane like Katrina," Thompson said.

Still, Gordon said Las Vegas fundamentals continue to remain healthy, "although we're likely to start seeing profit-taking as the sector (stocks) continue to reach prehurricane levels."

"We're watchful as to how national economic conditions and consumer spending patterns, particularly on leisure-related travel, impact the gaming sector on a go-forward basis even though as yet there are no signs of a downturn," Gordon said. "But in the long run, the level of investment taking place in the sector demonstrates management expectations while providing another opportunity for Las Vegas to transform from what we know it as today to a maximum mix of uses with more than any one traveler can consume in upscale, high-density resorts."

Gaming Stocks Increase Slightly is republished from