Analysts cautious on casino industry

Jan 15, 2009 9:21 PM
Staff & Wire Reports |

Two analysts remained cautious on the casino industry Thursday, saying companies in the sector are likely to struggle to pull in consumers given expectations for a continued economic downturn this year.

Analysts covering the industry have increasingly said that they do not expect the casino sector to make a full recovery in 2009, instead forecasting a potential rebound in 2010.

The industry has come under pressure as consumers continue to curb discretionary spending as they deal with the prolonged housing slowdown, eroding credit, escalating food costs and unemployment worries.

"Rolling the dice at a casino is at the bottom of the to-do list, in our opinion," Morgan Joseph analyst Justin Sebastiano wrote in a client note.

The analyst also said he is seeing increased promotions, which could increase casino revenue, but probably won't result in higher profits or earnings before interest, taxes, depreciation and amortization.

Sebastiano anticipates regional casino markets, excluding Atlantic City, N.J., will do better than Las Vegas, as many consumers can drive to such locations instead of flying to Nevada. Las Vegas is also vulnerable because it is more dependent on non-gaming revenue, such as entertainment, hotels and conventions, he added.

BMO Capital Markets analyst Jeffrey Logsdon said casino operators continue to be hurt by reduced earnings expectations as visitation and convention business falls due to the economic slowdown.

The analyst trimmed fourth-quarter profit forecasts for Ameristar Casinos Inc., Boyd Gaming Corp. (BYD) and boosted estimates for Las Vegas Sands Corp. (LVS) and Pinnacle Entertainment Inc. (PNK)

Logsdon cut Ameristar's quarterly forecast to 13 cents per share from 17 cents per share on unfavorable weather in the Midwest late in the quarter. Boyd's estimate was trimmed to 13 cents per share from 18 cents per share on the weather conditions as well as lackluster results at Las Vegas properties mostly frequented by local gamblers. The analyst cut Boyd's nine-month to 15 month price target to $5 from $6.

Shares of Ameristar Casinos dropped 51 cents, or 6.8 percent, to $6.99 in midday trading, while Boyd's stock slipped 31 cents, or 6.8 percent, to $4.27.

Logsdon anticipates a loss of 3 cents per share from Las Vegas Sands instead of a loss of 7 cents per share on better-than-expected New Year's Eve business. The analyst expects a loss of 8 cents per share from Pinnacle on better-than-expected St. Louis earnings. He previously forecast a loss of 20 cents per share.

Shares of Las Vegas Sands shed 45 cents, or 7.4 percent, to $5.63, while Pinnacle's stock dropped 51 cents, or 7.6 percent, to $6.21.

Related Articles:
Nevada revenues continue to slide
Gaming analyst says "The Price Is Right"
Spectrum identifies top trends for 2009
Gaming industry recovery unlikely until 2010