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Rod Smith
 

Mixed Results for Gaming Stocks

1 November 2004

Gaming stocks went their separate ways in October, with Boyd Gaming Corp. shares up 21 percent, closing at $33.49 Friday, to lead the pack and Alliance Gaming Corp. down 37 percent, closing at $9.25, to trail the market segment.

On average, however, gaming stocks continued recovering from their summer doldrums with the Dow Jones casino index up 5 percent and Applied Analysis Gaming Index, a weighted average of local gaming stocks, up 6 percent. By comparison, the Standard and Poor's 500 Index closed Friday at 1,130.2, up just 2 percent for the month.

Analysts said slot manufacturer's stocks in general were hit with a market malaise following the Global Gaming Expo in September, but that operators' shares broke out of their midyear slump based on strong fundamentals in the Las Vegas market.

Brian Gordon, spokesman for Las Vegas-based Applied Analysis, a financial consulting firm, said among slot manufacturers, Alliance was hard hit by a series of operational problems combined with restructuring charges that cut into its bottom line.

"That's not unusual, but they were reluctant to provide guidance going forward, citing uncertainty about where they are moving strategically, and that spooked investors," he said.

Gordon said Reno-based International Game Technology, typically the market leader, had its wings clipped by the upcoming elections and new doubts that gaming will not spread to new jurisdictions as quickly as expected.

"Those concerns are stalling their stock for the time being," he said.

Gordon said operators' stock prices got a boost from the continued strength in the overall tourism market, especially in Las Vegas, and from the September announcements of quarterly financial performances that generally beat market expectations.

"Some of the strong performances basically stopped the bleeding (in stock prices) we saw over the summer," he said.

Susquehanna Financial Group gaming analyst Eric Hausler said operators also got a boost from the high level of merger and acquisition activity in the gaming industry, which raised its visibility.

"But, most important, most of the gaming operators met or exceeded guidance, and that's all you need to keep gaming investors happy," he said.

Boyd was a particular case in point, thanks to its $1.3 billion acquisition of Coast Casinos at the beginning of the quarter, Hausler said.

The company had net third-quarter income of $35.5 million, up more than fourfold from $7.7 million a year earlier.

"For Boyd, you had a big chunk of the (stock) performance coming after (its financial) reporting Tuesday. And the outlook for each of their markets was also very positive, so the company deserved its outperformance (of the rest of the industry)," said Joe Greff, gaming analyst at Fulcrum Global Partners, an independent Wall Street investment research firm.

Greff said prospects for gaming stocks over the rest of 2004 and into next year remain good, based on industry fundamentals.

"In the early part of this month, G2E breathed a sigh of relief into the business and excited investors about Las Vegas for November and December and the first half of next year, especially given the heavy convention schedule," he said.

Mixed Results for Gaming Stocks is republished from Online.CasinoCity.com.