Positive gaming trends spark analysts’ optimism

Apr 2, 2002 9:18 AM

Even though Las Vegas visitor volume in January fell below last year’s levels, analysts are encouraged by some positive trends and are forecasting optimistic first quarter results.

For the month of January, visitor volume to Las Vegas declined by 134,275 to 2,671,274 or 4.8 percent.

However, the 2002 January failed to include Super Bowl weekend, which occurred Feb. 3, and Chinese New Year’s. Thus, if Super Bowl were held in January, analysts said Las Vegas would have easily surpassed last year’s visitor volume.

Analysts said the rescheduling of the Super Bowl to February, coupled with a strong Presidents’ Day weekend, should produce strong results for February.

Moreover, January’s “decline” in visitor volume was the narrowest decline since the September 11 tragedy, and “clearly show the continued rebound in the Las Vegas market,” according to Bear Stearns’ analyst Jason Ader.

Other statistics that are showing narrower declines is the air passenger traffic. In September, passenger traffic was down 28.3 percent from last September’s volume, but those declines have steadily decreased to only 10.2 percent in January.

Also encouraging was the strong drive-in traffic from California, which increased by 12.1 percent in January.

Other factors that have added optimism to analysts estimates include:

1.Better marketing and lower overall cost structure,

2.regional market strength,

3.mild weather conditions,

4.lower utility and gas prices,

5.consumer confidence,

6.steadily improving mid-week rates and occupancies.

Because of increased optimism, Bear Stearns has raised its first-quarter estimates for the following gaming companies: MGM Mirage, Harrah’s Entertainment, Park Place Entertainment, Ameristar, Penn National Gaming, Hollywood Casinos, Argosy Gaming and Aztar.

Bear Stearns said that Boyd Gaming and Station Casinos have already posted better-than-expected first quarter results.

“We believe the potential exists for many of these companies to report additional upside above our recently revised estimates, particularly owing to their historical track record of bettering even the most optimistic trends,” said Bear Stearns analyst Jason Ader.

How high are the “upside” results? According to Bear Stearns, the average gaming stock is currently trading close to 90 percent of its 52-week high, with 10 companies exceeding 90 percent of their 52-week high.

Moreover, gaming multiples (EV/EBITDA) are at or near historical highs with large-cap companies trading at an average of 7.6X (2003), while small-cap companies are trading at 6.7X (2003).

“We have not seen these type of multiples, especially for the small-cap operators, since 1993-96, when riverboat gaming was coming to fruition in many states,” Ader said.