Gaming stocks in nosedive as casino shares are downgraded

Jul 1, 2008 7:03 PM

Staff & Wire Reports | The Dow Jones Gambling Index reached a 52-week low last week as the value of gaming stocks continue to tumble.

"Gaming stocks are very much out of favor," said Robert La Fleur, an analyst at Susquehanna Financial.

JP Morgan analyst Joe Greff downgraded shares of MGM Mirage and lowered earnings estimates, citing "unprecedented" uncertainty over visits to Las Vegas and spending by customers who do make the trip.

Greff also lowered estimates for Las Vegas Sands (which owns the Venetian and Palazzo), noting that the operator has slashed room rates in order to try to get guests into the hotels.

Shares of Sands were down 5.6 percent to $50.42 after falling to a two-year low, $40.68. MGM’s shares were down 4.9 percent to $36.98 after touching $35.82, the lowest since September 2006. Boyd Gaming was down 3.6 percent, and Trump Entertainment Resorts fell more than 8.1 percent, marking a three-year low.

Another analyst, Dennis Forst of A Key Banc Capital Markets, expects the stocks to continue their free-fall. He lowered his priced target for Las Vegas Sands to $40, and set a price target of $70 per share on Wynn stock, which closed at $83.50 last week.

All the analysts agree that the slumping economy and high gas prices have hurt the Nevada gaming/tourism industry, but news that airlines, hit by soaring jet fuel costs, would reduce flight capacity added another layer of misery.

CEO’s quick to react

The men who run the major casino companies are not taking the bad financial news sitting down. Some have reacted by cutting costs, including staffing levels, such as MGM, which released about 400 middle managers.

But cutbacks could be risky, especially in an industry that relies on a high level of customer service. Steve Wynn, for one, has vowed not to pare back, saying he "doesn’t give a damn" about short-term market implications.

Instead, Wynn and others are ramping up marketing efforts abroad. The attractions of a weak dollar are clear, even to the unluckiest of foreign gamblers. "Every dollar I lose is only 50 pence," said a recent British visitor to Luxor’s roulette tables. Transatlantic business has also been boosted by boxing extravaganzas featuring European fighters.

Some casino marketers believe a weak economy and currency could boost domestic demand, as well. If past downturns are a guide, a substantial number of Americans will head to Las Vegas rather than taking an expensive vacation abroad, says David Schwartz of the Center for Gaming Research at the University of Nevada.

And the high rollers are believed to be immune to economic fluctuations. Some high-end casinos are doing even better this year than last, says Brian Gordon of Applied Analysis.