Wall Street still bullish on Vegas

October 23, 2001 3:44 AM
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Analysts from some of the foremost Wall Street firms predicted short-term hurts and eventual recovery for Las Vegas.

“Las Vegas will become more efficiently run from a gaming perspective,” Larry Klatzkin, senior vice president for Jefferies & Company said during a panel discussion at the 15th annual World Gaming Congress & Expo at the Sands Expo and Convention Center. “The long-term is positive.”

The short-term, however, is not. The evidence was all too clear from the makeup of the panel. Three original speakers had to cancel because of the events of Sept. 11 when airline travel became far more than a routine affair.

“Package (airline) plans are not luring people to Las Vegas,” Klatzkin said. “The market is feeling the affects of losing the high-rollers. The lower-level guy is becoming the quality customer, but he doesn’t spend as much and the casinos feel it.”

John Leupp, analyst for Credit Suisse at First Boston Bank, supported Klatzkin.

“It’s hard to get people to come to Vegas these days,” Leupp said. “The weekends are hit harder and there has been a loss of convention customers. The bond prices for Harrah’s MGM/Mirage and Park Place have taken a one-notch downgrade. The one positive aspect has been a reduction of interest rates.”

Leupp recommended investing in riverboats for the short-term and the big casino-hotels later on.

“I particularly like Mandalay Bay and Stations Casinos,” he said. “Mandalay is appealing on the bond side. The middle-market exposure as opposed to a giant like MGM-Mirage is an advantage. Stations must worry about employee layoffs, but both companies have high-quality assets.”

Dennis Forst, analyst for Los Angeles-based McDonald’s Investments, also felt riverboat gaming would benefit the most from today’s sagging economy.

“Business in the Midwest has basically remained unchanged,” Forst said. “Riverboats are mostly based there. Isle of Capri and Argosy look especially good. There is a need for geographic diversification. Las Vegas will still be the epicenter of gaming in the long-term, but people unwilling to travel very far are heading for the riverboats.”

Klatzkin noted that Boyd Gaming has offset its losses in Las Vegas with profits from riverboats.

“Stock prices are up seven percent on riverboats since Sept. 11,” he said. “Las Vegas is down 13 percent, Atlantic City down seven percent, the Bahamas down 30 percent.”

Forst said that Atlantic City has been provided an opportunity to pounce on the Las Vegas slide through the terrorist attacks.

“Foreigners are likely to stay away from venues like Las Vegas,” he said. “This is an opportunity for Atlantic City to up its ad campaign and lure customers. I do think that people will become more used to terrorist attacks if they keep occurring and eventually will take Israel’s attitude. We will become inert to this.”

Moderator Joe Weinert, a reporter for The Press of Atlantic City, said that the New Jersey beach area has changed for the better in the past 12 years.

“This is a good opportunity for Atlantic City, as it is for the Connecticut casinos,” Weinert said. “There is so much uncertainty. This is a challenging time for Las Vegas.”

Bear Stearns analyst Marc Falcone believes Las Vegas will not return to normalcy until the terrorist attacks cease.

“Right now, I would invest in the equipment sector of the industry like IGT-Anchor, instead of with the operators,” Falcone said. “The Internet is an outlet with more than half of the 4.5 million customers coming from the United States. However, legalizing Internet gambling is at least two years down the road and that’s being optimistic. Indian gaming has a chance.”

The Palms Casino Resort, scheduled to open Nov. 15 in Las Vegas, was not expected to be hurt too much by the city’s current economic standing.

“Palms appeals to locals and George Maloof  knows how to market his company,” Leupp said. “He will have exciting entertainment amenities. The gaming floor you can tell is for locals, and that’s their bread and butter.”

Leupp and Klatzkin were able to add a lighter touch to a gloomy investment report.

“The best thing about investing now is not having to worry about being wrong,” he said. 

Klatzkin took that comment a step further.

“If had a nickel for every time Mexico was going to legalize gambling, I’d be a rich man.”