Storms deal gaming industry more bad cards

Taking Stock

Gambling companies were struggling before Rita and Katrina sat down to play

Your Money

October 30, 2005|By ANDREW LECKEY | ANDREW LECKEY,TRIBUNE MEDIA SERVICES

Hurricanes Katrina and Rita inflicted temporary financial damage on a gaming industry already dealt a bad hand by declining consumer confidence.

With many casino entertainment stocks at depressed levels, investors might ask themselves: Do I feel lucky?

Shares of Las Vegas Sands Corp. are down 28 percent this year; Wynn Resorts Ltd., down 27 percent; Shuffle Master Inc., down 17 percent; Penn National Gaming Inc., down 6 percent; and Harrah's Entertainment Inc., down 6 percent.

Not all were lashed by hurricanes, but natural disasters prolonged an existing industrywide losing streak. Harrah's, the world's largest casino entertainment firm, had a $10 million quarterly charge tied to New Orleans damages and is evaluating the financial impact on other Gulf Coast properties.

"Harrah's properties affected by hurricanes together make up less than 10 percent of its revenues, while the impact on MGM Mirage was less than 5 percent," noted Rod Petrik, gaming analyst with Legg Mason in Baltimore. "Even though companies like Wynn Resorts and Las Vegas Sands had zero exposure to the Gulf Coast, their stocks fared no better."

Current stock valuations could represent opportunity for investors who see the positive long-term picture in an industry to be driven by baby boomers' wallets for the next decade. After several years of acquisition-boosted stock prices, they've come back down to earth.

"The intermediate, but not lasting, damage to gaming stocks from Hurricane Katrina is consumer spending uncertainty from higher gasoline and energy prices this winter," said Brian McGill, a gaming analyst with the Susquehanna International Group in Bala Cynwyd, Pa.

Statewide regulatory moves to legalize, expand or limit gambling, or to alter taxation on gambling profits, must be monitored. Domestic growth has receded to moderate from explosive, so firms are expanding overseas. Still, nothing seems capable of smothering the desire to wager.

"Historically, neither interest rates nor gas prices have very big impact on gaming spending because people continue to go to the casinos anyway," said Joe Greff, gaming analyst with Bear Stearns Cos. Inc. in New York. "Gaming stocks have taken it on the chin mostly because they performed very well the last three years, and there are a lot of accumulated profits."

Each promising stock in this highly volatile field has its own story:

Harrah's, owner of 40 casinos across 12 states and three countries, acquired Horseshoe Gaming last year and Caesar's this year. It has the industry's strongest balance sheet and brand loyalty. Its Total Rewards card encourages small-time gamblers, return customers and visits to additional Harrah's properties.

MGM Mirage, up 15 percent this year, attracts wealthier gamblers, controls half the hotel rooms on the Vegas Strip and carries a $12 billion debt load. It owns the Bellagio and such resorts as MGM Grand Las Vegas and Treasure Island. It has acquired Mandalay Bay, Luxor and Excalibur; has a 50 percent interest in Atlantic City's Borgata Hotel, Casino & Spa, and is developing a Detroit resort.

Wynn Resorts, which went public in November, is headed by fabled Las Vegas developer and former Mirage Resorts Chief Executive Steve Wynn. It owns the new Wynn Las Vegas luxury resort and opens Wynn Macau in China next year and Encore casino resort in Las Vegas in 2008.

Las Vegas Sands Corp., which went public in December, owns the upscale Venetian Resort Hotel Casino and the Sands Expo and Convention Center, as well as the Sands Macao in China. It is developing additional Las Vegas and Macao properties.

Station Casinos Inc., up 19 percent this year by attracting the growing number of Las Vegas "locals," owns eight hotel casino properties and five smaller casino properties around the city. It manages a casino for a Native American tribe and is developing Red Rock Resort Spa and Casino.

Kerzner International Ltd., down 5 percent this year, derives most of its profit from the recently expanded Atlantis Paradise Island resort in the Bahamas. It owns several One & Only resorts and will manage Atlantis The Palms in Dubai in 2008 and a planned Moroccan development.

Shuffle Master supplies automatic card shufflers and table equipment. Producing one or more new products annually, it has 15,000 shufflers and 3,000 table games installed in casinos. It acquired the former Casinos Austria Research & Development.

Penn National Gaming is a regional operator that became national through acquisitions such as Hollywood Casinos and, recently, Argosy Gaming, which gave it a collection of Midwestern riverboats. Well-positioned in markets such as Chicago, Cincinnati and Kansas City, it also owns horse racetracks and off-track wagering facilities.

Boyd Gaming Corp., up a fraction this year, is diversified owner of 19 casinos in seven states. It has a 50 percent interest in Borgata in Atlantic City, owns Stardust in Las Vegas and purchased Coast Casinos in Las Vegas. A third of its profit comes from Midwest riverboats. It has $2.4 billion in debt.

Petrik recommended stock in Harrah's, MGM Mirage, Wynn Resorts and Las Vegas Sands; Greff suggested Station Casinos, Kerzner International and Shuffle Master; and McGill likes Penn National Gaming and Boyd Gaming.

Andrew Leckey writes for Tribune Media Services.

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