Goldman cuts casino ratings, another analyst upgrades

Oct 17, 2008 8:18 PM
by Kevin Stott | On Thursday, Goldman Sachs cuts its rating for the casino sector, citing fears of a possible recession in the future. The renowned brokerage firm said that with consumers struggling to pay their mortgages, pay off credit cards and fill up their gas tanks, there seems to be very little left over for discretionary spending.

Included in the list of the more well-known companies targeted by Goldman Sachs were MGM MIRAGE (MGM), cut from $32 per share to $17 and Las Vegas Sands (LVS), cut from $60 per share to $25. Also seeing price targets cuts were Wynn Resorts (WYNN), Penn National Gaming (PENN), Pinnacle Entertainment (PNK) and Boyd Gaming (BYD).

Analyst Steven Kent said that casinos are still attracting customers but that they are gambling less due to current economic conditions.

"We would acknowledge that in a consumer-led recession casinos’ top lines will come under pressure, but we do not think consumers will stop completely…," he wrote in a note to clients.

In reaction to the announcement from Goldman Sachs, the SIG Gaming Index (SGV) plunged 5.5 percent in early trading on the day, pushing the index to a new yearly low. The SGV is down more than 73 percent since January of 2008. And in comparison to the rest of the stock market, the SGV’s week’s relative-strength index against the S&P 500 Index (SPX) has been declining since November of last year.

Another analyst, Jake Fuller of Thomas Weisel Partners LLC, said that he thought the worst-case earning scenarios and credit conditions are already reflected in the prices of those stocks.

"As efforts to restore credit markets unfold we see multiple expansion as investors start to look beyond mid-2009 through toward a 2010 to 1011 recovery," said Jake Fuller of Thomas Weisel Partners LLC wrote in a note to clients.

Whether or not there is value or no value in investing in gaming stocks at this point in time is still unsure.

In trading on Thursday, MGM MIRAGE (MGM) shares closed down $0.58 to $14.40 (-3.87%), while Las Vegas Sands (LVS) issues ended up $0.89 to $11.83 (+8.14%) for the trading day. Pinnacle Entertainment (PNK) shares closed up $0.19 to $4.84 (+4.09%), Wynn Resorts (WYNN) issues were up a healthy +3.24 to $52.54 (+6.57%) and Penn National Gaming (PENN) issues closed down $0.26 to $15.00 (-1.70%).