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Rod Smith

Gaming Stocks Turned Out to be Sure Bet in 2003

2 January 2004

The past 12 months have been a banner year for gaming stocks, with the average value of casino shares up almost 40 percent -- more than double the broader market indices.

"The surprise of 2003 was how much the consumer was willing to put up and still want to travel especially when it came to gaming," said Goldman Sachs analyst Steve Kent. "We saw consumers still traveling to Las Vegas in the first half despite the Iraqi war and the fear of terrorism. And in the second half, we saw a resurgence in convention business (that drove demand in Las Vegas skyward)."

Driven by high holiday demand and expected fourth-quarter earnings, Applied Analysis' monthly weighted average of eight local stocks closed December at 215.71, up 5.4 percent from 204.75 in November and 37.2 percent from 156.9 in December a year earlier.

That is almost double the increase in a similarly weighted average of the Standard and Poor's 500 Index, which increased 19.8 percent to 1077.6 in 2003 from 899.2 a year earlier.

"During most of December, indicators suggested a strong holiday season with the better weekday timing than last year for the Christmas and New Year's holidays," said Brian Gordon, spokesman for Applied Analysis, a Las Vegas-based financial consulting firm.

"Month-end concerns over terrorism threats and speculation of acts of violence publicized on a national level seem to have had only a small impact on visitation for the big New Year's celebration," he said.

Gordon said Mandalay Resort Group was the top performer among operators with nearly an 8 percent rise in its average stock price for the month, with the strong performance of its Strip properties suggesting improved conditions in Las Vegas.

Mandalay shares closed Wednesday at $44.72, up almost 5 percent for December and up 45 percent for 2003 as a whole.

Gordon also cited Park Place Entertainment Corp., whose stock closed the year above $10 a share for the first time in 18 months

"Park Place battled analyst concerns (all year) that it was not achieving profitability measures of other major operators, which was reflected in their stock price. Despite the complaints, Park Place managed a 30 rise in valuation," Gordon said. Park Place shares shares closed Wednesday at $10.83, up 4.5 percent for December and up 32 percent for 2003.

Gordon also said MGM Mirage had the most price volatility of any Strip operator early in the year "with the impacts of Iraq and SARS causing concern for the Las Vegas Strip dominator."

MGM Mirage's 2003 performance included the opening of the Borgata in Atlantic City with joint venture partner Boyd Gaming, which has been met with mixed reviews, and it was forced to wrestle with the closing of the Siegfried & Roy show, Gordon said.

MGM Mirage shares shares closed Wednesday at $37.61, up 1 percent for December and up 15 percent for the year.

However, Joe Greff, gaming analyst with Fulcrum Global Partners, an independent Wall Street investment research firm, warned in an advisory to investors this week that concerns about the gaming sector persist.

He said that at current high stock prices, there are only a handful of attractive values being traded, and overall, while demand is high and increasing in Las Vegas, other areas -- particularly Illinois, Indiana, Louisiana, Missouri and New Jersey -- face problems of oversupply, increased competition and higher taxes.

Looking ahead to 2004, Goldman Sachs' Kent predicted a replay of 2003, but with a "double whammy."

"We may see strong leisure travel combined with resurgent business travel and Las Vegas will be the biggest beneficiary of the boost in business travel because it will mean (another) boost in convention attendance," he said.