Gaming stocks follow market up in May

Easing war fears, respite from tax boosts,
help raise issues in month, analysts say

June 03, 2003 - Local gaming stocks surged almost 20 percent in May, largely on the back of a broad market rally.

Standard & Poor's 500 Index finished May at 970, up more than 20 percent since the rally started in early March.

Wall Street analysts have historically used such major swings as barometers of a coming bull market. In addition, Applied Analysis spokesman Brian Gordon said, both concerns over international conflict and the apparent threat of the deadly severe acute respiratory syndrome virus continued to subside in May.

The Applied Analysis Gaming Index, a monthly weighted average of eight local stocks developed by a Las Vegas-based financial consulting company, ended May at 254.23, up 7.5 percent from April and up 17.5 percent from the previous May.

Gaming operators included in the index posted an aggregate 2.7 point increase for the month, while the manufacturer component of the index posted a 15.0 point increase.

Despite early second-quarter warnings from a few of the major Strip operators, Gordon said expectations that the leisure market would improve contributed to the price increases.

The monthly average price of Harrah's Entertainment shares increased 10.1 percent, though MGM Mirage's stock price declined 2.9 percent, the only decline in the group. Also, International Game Technology posted a 7 percent compared with April and a 40.9 percent gain for the year.

Continuing demand for its new ticket-in, ticket-out equipment and the expansion of gaming nationwide should enable IGT to continue to outperform the rest of the sector, Gordon said.

Joe Greff, gaming analyst at Fulcrum Global Partners, an independent Wall Street investment research firm, said despite the appreciation in stock values, "We continue to see good opportunity in the gaming sector given strong free cash flow generation, attractive relative valuation, and decreasing earnings risk (relative to lodging)."

Fulcrum "buy"-rated gaming stocks include Station Casinos, Mandalay Resort Group and MGM Mirage. It gives a "neutral" rating to Harrah's Entertainment, Boyd Gaming Corp., Aztar Corp. and Park Place Entertainment Corp.

Deutsche Bank analyst Marc Falcone said the respite from proposed tax increases, especially in New Jersey and Illinois, during most of May, also boosted gaming stocks from their previous position.

"And the other reason was some of the companies had started outperforming the market and we were starting to see Mandalay (Resort Group) do well as room rates improved," he said.

During the month, Mandalay Resort Group reported positive earnings for its Las Vegas-based operations. With the first full quarter of operations for the expanded convention center, top line revenue and revenue per available room both improved significantly at Mandalay Bay, the company's flagship property.

Gordon believes increased convention business could also drive up room rates at the the company's new $230 million hotel tower at Mandalay Bay.

Although Wynn Resorts is not included in the index, its price increased to 18.80, up 10 percent in May.

"Interest in the stock will continue to peak as (Steve Wynn's) Macau (casino) gets closer. Also, development at the north end of the Strip perks up investor interest even though it is hard to analyze the stock because there won't be any (real financial) data until they open," Gordon said.

« Go Back

Article Copyright ©: R. Smith, Las Vegas Review-Journal