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INVESTMENTS: Gaming stocks surge in September
Applied Analysis, Dow Jones gambling-issue
gauges rise in month
October 01, 2004 - Gaming stocks had a banner month in
September, recovering from their summer doldrums with a surge
of 12 percent in the Dow Jones Casino Index and 6 percent in
the Applied Analysis Gaming Index, a weighted average of local
gaming stocks.
The Applied Analysis index increased 15.5 points in September
to close at 246.72, after dropping 28.42 points, or 11
percent, in July and August combined.
Susquehanna Financial Group gaming analyst Eric Hausler said
gaming stocks were oversold in July and August as room rates
flagged, and September's performance was in part a market
adjustment for the earlier overreaction to industry trends.
Deutsche Bank analyst Marc Falcone said the turnaround in
September reflected a reacceleration of growth in the Las
Vegas market following the summer slowdown and better investor
appreciation for the creative nature of the two pending
megamergers between Harrah's Entertainment and Caesars
Entertainment and MGM Mirage and Mandalay Resort Group.
Joe Greff, gaming analyst at Fulcrum Global Partners, an
independent Wall Street investment research firm, said
investors were also beginning to bet on the surging value of
Las Vegas real estate, including the property MGM Mirage will
control once its merger is consummated.
An investor advisory released this week by Merrill Lynch
estimated that MGM Mirage, combined with Mandalay, will
control about 150 acres of excess land on the Strip worth up
to $300 million.
Shares in MGM Mirage led other operators, closing at $49.65,
up more than 15 percent for the month.
Brian Gordon, spokesman for Las Vegas-based Applied Analysis,
a financial consulting firm, said MGM Mirage's performance was
driven by a Merrill Lynch upgrade from "neutral" to "buy" and
successful placement of $450 million in debt.
In addition, Greff said investor understanding of the
tremendous potential for gaming operations in Macau was
driving shares in Wynn Resorts Ltd. upward. Wynn Resorts
closed Thursday at $51.69, up 34 percent for the month.
Gaming operators in the index accounted for the bulk of the
September gain, with an increase 12.4 points, while the gaming
manufacturers lagged with a gain of only 4.5 points.
On the equipment side, analysts agreed investors were moving
quickly into the companies' shares, anticipating introduction
of new slot machines at next week's Global Gaming Expo at the
Las Vegas Convention Center.
"Investors wanted to buy in advance of the buzz and excitement
of G2E," Greff said.
Gordon said mergers, acquisitions and divestitures continued
to be the hot topic dominating investor interest.
He also said investors were looking more favorably on Harrah's
Entertainment's $9.4 billion buyout of Caesars Entertainment
as they realize it will likely entail fewer antitrust concerns
than originally expected.
In addition, while helping to address antitrust concerns,
deals struck by Harrah's and Caesars to sell four noncore
assets for $1.2 billion reassured investors fire sales would
not be necessary, even if regulators force casino sales,
Gordon said.
During the month, Colony Capital agreed to pay 8.5 times cash
flow for Harrah's East Chicago, Harrah's Tunica (Miss.),
Atlantic City Hilton and Bally's Tunica (Miss.). By
comparison, Harrah's is buying Caesars for 7.5 times cash
flow, meaning the sales represent an immediate profit and
Harrah's will assume less debt.
International Game Technology shares led the manufacturing
side, closing at $35.95, up almost 23 percent for the month.
Falcone said prospects for the growth of gaming overseas,
especially in Macau, combined with continuing prospects for
converting casinos to cashless slot systems have been driving
share prices in IGT.
Gordon said the anticipation of G2E combined with a positive
analysis in the Wall Street Transcript's annual report on
gaming and gaming equipment also drove IGT shares upward.
He said the outlook for gaming stocks continues to improve,
based on reasonable growth rates in the sector, improving
national economic conditions and pent-up demand for leisure
travel to Las Vegas which will be unleashed as the opening of
Wynn Las Vegas, set for April 28, approaches."
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Article ©: R. Smith, Gaming Wire, LVRJ
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