Investors ignore Moody's warnings, boost gaming stocks

Jul 22, 2008 7:00 PM

Industry Insider by Ray Poirier | With the earnings season underway, gaming investors usually spend their time discussing price-earnings ratios, not debt. But contrary to the norm, the discussions over the weekend focused on debt ratings and comments released by Moody’s Investors Service.

After reviewing recent gaming revenue reports, Moody’s expressed concern about declining gaming revenues on the Las Vegas Strip and issued several notices of bond debt downgrades or reviews for others.

Initially, Moody’s downgraded the debt of Harrah’s Entertainment and Station Casinos, both of which were recently taken private, and put MGM MIRAGE Inc. (MGM) and Las Vegas Sands Corp. (LVS) on notice for review.

Later, the rating service changed the outlook for the bonds of Wynn Resorts Ltd. (WYNN), Riviera Holdings Corp. (RIV) and Fontainebleau to "negative" from "stable" and placed Boyd Gaming Corp. (BYD) bonds on review.

The ratings were expected to dampen investors’ spirits on Monday but just the reverse happened, helped a great deal by an analyst report.

Larry Klatzkin of Jefferies & Co. wrote to investors that he believed Las Vegas Sands was not being credited for its Macau involvement.

"In our view, current trading levels do not give (LVS) credit for its unfunded Macau projects, nor does the price include the company’s potential to operate in new international locations as they become available," Klatzkin wrote.

He added that "we expect its (LVS) formula of must-see convention centers, mega malls and mega casinos that reinvent markets to enable it to compete for any new markets opening in the future."

Investors rushed to take advantage of the stock’s depressed price and pushed it up during trading hours Monday to $42.22, an increase of $3.65 for the day.

Also benefiting were two other major Macau players: Wynn Resorts, up $5.40 to $93.43 and MGM MIRAGE, increasing $1.50 to $27.50.