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Rod Smith

Gaming Stocks Strong in January

2 February 2004

LAS VEGAS -- January was a stellar month for gaming stocks, with the average value of casino shares up more than 50 percent from a year earlier. The gain was also more than double that of the broader market indexes.

"Investors were anticipating good news coming from the bellwethers (in the gaming sector), and they got it (in recent earnings reports)," said Joe Greff, gaming analyst at Fulcrum Global Partners, an independent Wall Street investment research firm.

Brian Gordon, spokesman for Applied Analysis, a Las Vegas-based financial consulting firm, said the national economic recovery, increased willingness to travel and surging consumer confidence also contributed to investor interest in gaming stocks.

Driven by strong earnings reports, high occupancy rates at Strip properties and continued increases in room rates, Applied Analysis' monthly weighted average of eight local stocks closed January at 224.67, up 4 percent from 215.71 in December and 53 percent from 146.83 in January a year earlier.

That compared with an increase in the Standard & Poor's 500 Index of 26 percent, which closed Friday at 1,131.13.

Deutsche Bank analyst Marc Falcone said the continued strength of the Las Vegas market drove the stock surge, with Station Casinos shares alone increasing 10 percent in price Thursday following a very favorable earnings report.

"Earnings reports so far (for the fourth quarter) have met or passed expectations, except for Caesars (Entertainment's) earnings this week," Falcone said.

Caesars Entertainment shares closed Friday at $11.45, up 6 percent for the month and up 52 percent compared with a year earlier.

Gordon agreed the brightest star among gaming stocks in January was Station Casinos, which closed at $35.01, up 14 percent for the month and 96 percent from a year earlier.

"Their performance is tremendous," he said. "It's the one (major) off-Strip operator, and its revenues, profitability and incremental cash flow just keep growing."

Besides Station Casinos, Greff said the strongest performers have been, and likely will continue to be, slot machine manufacturers and casino operators that are focused on Las Vegas.

"Atlantic City is tough right now with new capacity, competition and bad weather," he said. "Companies with exposure to Las Vegas are well-positioned with volumes and room rates coming back, especially MGM (Mirage) and Mandalay (Resort Group),"

At Applied Analysis, Gordon added that Wynn Resorts Ltd., which is not included in the index, continued to report price gains in January despite the absence of operating income.

It closed Friday at $29.53, up 5 percent for January and 122 percent from a year earlier.

Gordon said Applied Analysis expects that trend to continue in 2004.

Greff said the year's first half should prove particularly strong for Las Vegas, but companies with operations in Atlantic City will have to wait and see how the market shakes out around the anniversary of the Borgata's opening.

And Falcone said Deutsche Bank is bullish on the continued strength of Las Vegas and the overall strength of the gaming industry.

"The recovery in the economy will be critical to the volume of gaming, and the return of high-end play, nationally and internationally, is very encouraging," he said.