Gaming sector caught in market skid

Volatility continued to plague gaming industry stocks in February.

Just two of the seven casino operators tracked for an index compiled by Las Vegas financial consulting firm Applied Analysis reported month-over-month increases in their average daily stock prices. Two slot machine makers reported double-digit jumps.

The rest of the companies continued a downward trend that has hit the gaming sector since November.

"Valuations during the month of February were impacted by earnings reports for selected operators, related forecasts by Wall Street analysts and concerns over the performance of the national economy," Applied Analysis partner Brian Gordon said Friday.

The gaming index, which takes into account more than 300 market variables and economic indicators, climbed almost 78 points in February to 558.56, its first increase since October.

Las Vegas Sands Corp. and Wynn Resorts Ltd. both reversed three-month downward trends in February. Las Vegas Sands traded at $88.15 on an average daily basis in February, up 4.45 percent from January. Wynn Resorts had an average daily price of $110.79 during the month, up 4.82 percent.

Gordon credited the performance of Las Vegas Sands' massive Venetian Macau resort in China, which reported cash flow of $117 million in the fourth quarter, with giving the company a boost.

Deutsche Bank gaming analyst Bill Lerner said Friday that gaming revenue in Macau may be up as high as 56 percent in February, according to media accounts from the Chinese gaming enclave. Lerner said preliminary reports have been close to the actual numbers when they are reported by the Macau government.

The figures are good news, he said, for Las Vegas Sands, Wynn Resorts and MGM Mirage, which operate casinos in Macau.

"We view these results as positive, and (they) could restore confidence in the potential growth of the Macau market," Lerner said.

MGM Mirage shares continued their decline in February, the company's fourth straight down month. Shares in the company averaged $68.01 during the month despite news of a $1 billion cash gain associated with its sales of half of the massive CityCenter development to Dubai World.

MGM Mirage also tried to boost its stock by offering, along with Dubai World, to purchase up to 15 million shares of the company's stock.

Gordon said MGM Mirage presented a mixed earnings bag to investors when it reported fourth-quarter results last month.

"It appears higher-end properties managed to sustain healthy gaming volumes, while lower-tier properties have been impacted by the latest economic climate," Gordon said.

Slot machine makers International Game Technology and WMS Industries both reported double-digit month-over-month increases in their average daily stock prices.

Gaming equipment manufacturers were given a potential gift early in February when California voters approved a slot machine expansion at several of the state's American Indian casinos which could bring 17,000 new machines into the market over the next few years.

Gaming analysts said investors are also looking at IGT and WMS to provide the industry's initial server-based gaming products by the end of the year or in early 2009.

Bear Stearns gaming analyst Joe Greff said in a report that slot makers are poised to prosper after sales revenues shrunk for much of the decade.

"We believe gaming equipment is a favorable investment area in 2008 given its limited sensitivity to a consumer slowdown and domestic economic cycles," Greff said. "We expect server-based gaming news flow to remain positive for IGT and WMS."

Contact reporter Howard Stutz at hstutz@reviewjournal.com or (702) 477-3871.