Global, non-Vegas casino operators lift August index

3 September 2010

LAS VEGAS, Nevada -- The gaming sector's stock market performance during August carried a distinct trend.

Companies with large casino holdings outside of the United States and regional gaming operators were the darlings of the investment community.

Las Vegas-centric gaming companies didn't fare quite as well.

Half of the 10 companies charted by Las Vegas-based financial adviser Applied Analysis showed an increase in their average daily stock prices during the month, following a July when the entire sector nose-dived.

The August performance helped boost the Applied Analysis Gaming Index by almost 18 points to 349.19.

Applied Analysis principal Brian Gordon said it was clear that investors are turned off by Las Vegas right now, where gaming revenues have seen declines in the past three months.

"Investors seem to be shying away from operators with a significant presence in the Las Vegas markets, both destination- and locals-based," Gordon said. "There is month-to-month volatility, but investors see much more upside in those companies that operate in other markets or abroad."

Las Vegas Sands Corp., which has three casinos in Macau and opened a $5.7 billion property in Singapore, saw its average daily stock price climb more than 18 percent in August due to results reported from those destinations.

Gordon said Las Vegas Sands also pleased investors by announcing a $1 billion debt paydown and modification of term loans.

The move, Gordon said, provided Las Vegas Sands "with increased flexibility to pursue development projects and/or acquisitions. The deleveraging strategy, combined with strong operations abroad, also resulted in debt credit rating boosts from Moody's and Standard & Poor's."

Wynn Resorts Ltd., which also has two casinos in Macau, saw its average daily stock price jump more than 6 percent.

Meanwhile, the third Nevada company operating in Macau, MGM Resorts International, saw its average daily stock price remain relatively flat. The company's half ownership in one Macau casino wasn't enough to overcome fears surrounding Las Vegas.

Investors continued to express concern about the company's Strip holdings, including the $8.5 billion CityCenter with its centerpiece Aria resort, which many analysts have said is underperforming.

"Results were softened by relatively weak hold percentages, particularly at the high end of the market," Gordon said. "The trend was not uncommon among other operators, but the weakness continued in the Las Vegas market for MGM."

Macquarie Securities gaming analyst Chad Benyon said casino operators on the Strip are bracing for a continued challenged market through the end of the year.

"Most Strip operators remain cautiously optimistic, but remain concerned with increased travel prices and more conservative spend per patron," Benyon said. "We believe operators are somewhat more skeptical on the return of higher average daily room rates, given the additional supply in Las Vegas and weakness with the consumer."

Investors did like casino operators in the regional markets. Penn National Gaming's average daily stock price jumped 15 percent during August and the average daily stock price of Ameristar Casinos was up almost 12 percent.

However, the trend didn't hold for Boyd Gaming Corp., which operates in several regional markets, but also has a significant presence downtown and in the Las Vegas locals market. Shares of Boyd traded down more than 6 percent on an average daily basis.

"The locals-oriented gaming operator continued to fight challenges sourced to a sour economy in the Las Vegas market," Gordon said.

All three slot machine manufacturers charted by Applied Analysis showed decreases in their average daily stock prices as sales domestically continued to slow.

"Gaming suppliers continue to fight tooth and nail for minimal slot orders, but the upcoming product offerings should bode well for operators looking to freshen their slot floors," Benyon said.

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