Gaming shareholders hit the jackpot

Andrew Leckey

February 17, 1993|By Andrew Leckey | Andrew Leckey,Tribune Media Services

Bet on it: Gambling, whether you like it or not, will continue to expand throughout the country.

As a result of that belief, shareholders in gaming companies have hit the jackpot for two straight years, their shares running up significantly in price.

Such fortune is expected to continue as legalized gambling -- from riverboats to casinos to hotels -- becomes a growth industry of the 1990s. It's no longer simply the domain of Nevada or Atlantic City.

Politicians around the nation, you see, are afraid to raise taxes. But they know they can add jobs through gaming, then slap taxes on it to meet their troubled budgets. Future tax increases tied to gambling should encounter minimal resistance, just as in the case of "painless" user taxes on tobacco or alcohol.

Meanwhile, many consumers accustomed to the likes of state lotteries, horse racing and sports pools have become more open-minded. They deem gambling entertainment rather than a vice.

Casino gambling draws considerably better-educated and well-off patrons than a lottery does, and modern gaming equipment is geared toward a generation comfortable with Nintendo.

"Legitimacy of gambling as a leisure pursuit will be stronger on Wall Street and Main Street over the next six months, as it increasingly gains legislative approval for revenue-raising," predicts Steve Eisenberg, analyst with Oppenheimer & Co.

"My advice to investors is to put money in the best big-name stocks or in the smaller-company stocks with a clearly defined niche they dominate."

Gambling, though still lacking universal respect, isn't new to Americans.

"There's been a tremendous illegal gambling industry for a long, long time, and this underground economy is now being brought above ground as government seeks to offset its deficits," says Kurt Feuerman, managing director of Morgan Stanley. "Before this is over, there will be gambling in virtually every jurisdiction in this country."

The industry's "tainted" image of criminal ties also goes back many decades, Feuerman notes. As a result, its stocks are still undervalued by Wall Street despite their recent run-up. The stigma has also kept down overall ownership of its stock by American investors.

"Because the gaming industry is changing so much, it has a dramatic growth profile, and most companies will see some upward price movement," says John Rohs, managing director with Wertheim Shroder. "But, for the long haul, it makes sense to go with high-quality, above-repute firms with extensive experience."

Michael Mufson, analyst with Stein Roe & Farnham, points out that the industry is also aided by "a switch to older people with considerably more free time and money." That trend should continue as baby-boomers age.

Two companies, Circus Circus Enterprises and Promus, are recommended for investment by all four analysts interviewed for this column.

Circus Circus, a blue-chip casino operator that hasn't gone for high rollers, is considered the "Wal-Mart of casinos" by Mufson. Its posh new $300 million Luxor property that opens in Las Vegas in October should boost its bottom line.

Promus is aggressively using its famous Harrah's nameplate to move into new gambling jurisdictions through riverboat casinos and Indian reservation casinos.

Caesar's World, an inexpensively priced stock of a company known for large casinos and also the Forum at Caesar's shopping mall in Las Vegas, is recommended by Eisenberg, Feuerman and Rohs. It will manage the new Grand Palais Casino in New Orleans.

International Game Technology, largest producer of slot machines in the world and a technology leader, is a pick of Eisenberg, Feuerman and Mufson. It receives 75 percent of the industry's machine orders. IGT invented the concept of multisite slot systems in Nevada and Atlantic City, from which it receives a share of the take.

Mirage Resorts, a well-managed and growing casino operator that opens the mega-resort Treasure Island in October, is recommended by Eisenberg and Rohs. Another firm, G Tech Holdings, which dominates the video lottery business, is a selection of Feuerman.

Among smaller niche firms, Eisenberg likes President Riverboat Casinos, as well as WMS Industries in video lotteries and Boomtown in Western-style truck-stop gaming facilities.

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