Index of casinos and manufacturers takes a big leap

February 13, 2004 - Some 275,000 visitors sipped champagne to start off the New Year in Las Vegas, and gaming executives and shareholders might have opened as many bottles to celebrate the end of the month as the leading industry companies posted gains across the board in January according to the Gaming Index from Applied Analysis.

Predicated on the average monthly share price and market capitalization of eight major gaming corporations - five casino operators and three manufacturers - the index rose by 8.97 points to 224.67, a robust 4.2 percent rise. The base of 100 was established in January, 1998.

In addition, casino operators led the charge upwards in the capital markets, contributing 8.42 points comprising 93.9 percent of the gain. Casino gains this past January stand in stark contrast to prior months, in which manufacturers led by International Game Technology (IGT) were the preeminent darlings of Wall Street because their wares are in demand in all competing jurisdictions.

According to Brian Gordon, principal at Applied Analysis, the local research and market analysis firm, the market's confidence in casino stocks reflects the broader national confidence in the recovery, leading stockbrokers and buyers to assume more leisure spending.

In addition, major casino operators MGM Mirage and Station Casinos released strong quarterly results during the month, with earnings per share jumping 40.7 percent and 133.3 percent respectively over the same quarters last year, thereby heightening investor expectations of even stronger earnings as the economy improves.

"The national economy continues to perform relatively well," Gordon says. "Consumer confidence levels are continuing to increase. Consumers are showing a willingness to travel with their disposable incomes."

Harrah's Entertainment posted the largest gain in January, contributing 3.60 to the gaming index as the markets greeted the company's moves, such as the acquisition of the Horseshoe brand name and the announced sale of its Shreveport casino, positively. The company's average share price for the month rose 5.99 percent to hit $51.32 per share.

Gordon expects Harrah's average share price to march south slightly following the release of its quarterly report earlier this month, showing net income down 34.3 percent at $35.4 million and diluted earnings per share down one-third to 32 cents per share.

"They missed Wall Street estimates by three cents per share," Gordon says. "The western region did decent but the east coast was below par. Harrah's [weaker performance] will have some impact on the index in February but it will not be significant overall."

With results of the Super Bowl to be tabulated and the city approaching the tip-top of its tourism season in February, Gordon sees more of the same as gaming stocks continue to outperform the broader market. The January Gaming Index grew by 53 percent from the same month last year compared to the 37 percent gain for the S&P 500 in the same period.

"Although there is an overall improvement in the economy, there is some hesitancy where jobs are going," Gordon notes. "But there is an increase in regional and national carriers coming here. [With February], we are seeing a month when operators perform well."

Betting on Christmas

Gaming revenues after payouts dipped during December, slipping by $7.9 million, or 1.02 percent, over December, 2002, to settle at $767.3 million across the state, according to figures from the Tax and License Division of the Gaming Control Board.

Even the Strip, which typically accounts for about half of the state's total take, lost of some its luster as gaming revenues there skidded by $3.3 million, or .86 percent, from the previous December to reach $378.7 million, leaving little to cheer about this past Christmas.

The rest of the county fared no better, with only North Las Vegas' $21.8 million and Mesquite's $9.1 million in December gaming revenues registering increases of 11.09 and 6.35 percent, respectively, over the previous year. Downtown continued its spiral as gaming revenues fell $4.3 million, or 8.16 percent, in December to $48.5 million and the entire county drooped by $7.4 million, or 1.15 percent, in the month over the previous year to reach $635 million.

If luck be a lady, she was cold in December.

According to Tax and License Division Senior Analyst Frank Streshley, luck was precisely the culprit, particularly at the tables, as the house win on the Strip dropped 9.9 percent at the crap tables and 6.7 percent for Baccarat during December over the previous year.

"It's the end of three months of small increases," says Streshley. "Everything we had heard about room occupancy rates and visitor volumes suggested more of the same. That's what we expected. But the casinos played a little unlucky."

There was also a question of timing. The combined win at race and sports books dropped from $8.1 million in December, 2002 to $73,000 this past December. That precipitous drop needed more accounting than an entry in the ledger.

"When we see a large fluctuation like that, we either check for problems with the reports or make a few phone calls," said Streshley. "We made a few phone calls."

According to what Streshley was told, the month saw an unusual amount of winnings from previous months being redeemed in December. While not typical, Streshley said the reasoning was acceptable to the board.

Because wagers taken in by books are reported the same day while payouts aren't reported until they are actually made, the unusual circumstance could require readjustments to earlier figures.

"Its apples and oranges," he says. "Normally, most tickets are cashed in pretty frequently. There were large ticket winnings cashed in this month. This means [revenues] were overinflated in previous months."

While private industries are subject to the vagaries of the marketplace, you can always state the obvious, namely that government don't have to take a chance. The government's cut in December rose by $1.8 million, or 4.83 percent, over the previous year to reach $39.4 million, thanks to the 8.6 increase in tax rates which began in September.

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Article Copyright ©: S. Mihailovich, Las Vegas Business Press