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Wall St. raps losers; ignores winners

Aug 3, 2004 5:06 AM

Investors seemed more interested in punishing gaming companies that failed to meet their quarterly estimates rather than reward those that exceeded analysts’ estimates.

Cases in point, were Boyd Gaming Corporation (BYD) and Penn National Gaming Inc. (PENN) on the plus side and Multimedia Games Inc. (MGAM) and Ameristar Casinos Inc. (ASCA) on the downside.

With the Borgata Hotel/Casino and Spa in Atlantic City providing strong impetus, Boyd Gaming, which shares ownership of the Borgata with MGM MIRAGE Inc. (MGG), reported revenues of $341.9 million versus $312.5 in the second quarter of 2003. Adjusted earnings were $0.27 per share compared to last year’s $0.21 per share.

Penn National Gaming saw an increase of 26.3% in its net income with earnings per share rising to $0.48 from last year’s $0.44 per share.

Yet in week ending trading, Boyd Gaming’s shares rose modestly to $26.29 from the high $24 range early in the week while Penn National’s shares fell from the $36 level to Friday’s close of $31.97. By Monday, PENN had returned to the $36 level.

As for the decliners, Multimedia Games shares took the largest hit falling to $18.91, down $5.63 a share on Friday after reporting a profit of $9.8 million or $0.32 per share compared to last year’s $8.9 million or $0.30 per share. However, in a survey of analysts conducted by Thompson First Call, the company was expected to earn $0.34 a share.

Also taking a major hit were the shares of Ameristar Casinos that had record second quarter consolidated net revenues of $210 million, a 7.8% jump over 2003 and net income of $15 million, a 3.8% increase over 2003.

Diluted earnings per share for the period was $0.54, equaling last year’s number but below its own previous guidance of between $0.55 and $0.57 a share and lower still than the analysts’ average of $0.59 per share.

Following the announcement, Ameristar’s shares fell 16%. On Friday, the company’s shares traded at $26.88, after having fallen from the $30.68 level early in the week.

In its presentation, Boyd Gaming reported that the Borgata had record quarterly gaming revenue of $150 million and record quarterly non-gaming revenue of $57 million. This included the highest table game win in the Atlantic City market. The table game win per unit was $4,184, easily topping the average table win in A.C. of $2,660 per day.

The property’s success has far exceeded management’s predictions and company officials took the opportunity of using the earnings announcement to incorporate expansion plans for the hotel/casino.

According to Bob Boughner, CEO of the Borgata, the expansion project, which awaits regulatory approvals, will include 600 additional slot machines, bringing the total to 4,100 units; 36 additional gaming tables, making the total 175; 56 additional poker tables, raising the level to 90 and several amenities such as nightclubs, restaurants, spas and retail shops.

Plans for Penn National Gaming focused on developing more racinos in Pennsylvania and Maine and expanding the number of slot machines at its Charles Town track by 300 units to 3,800.

In Pennsylvania, the company has two operating racetracks that will be expanded into racinos, once the new state law is implemented. Also, officials said, the company’s balance sheet "provides significant financial flexibility for future growth through additional property expansions, acquisitions and new gaming legislation."

Although Ameristar Casinos reported market share increases in its Missouri operations, some analysts expressed concern over the company’s note that corporate expenses had increased $1.1 million compared to the same period a year ago. They said the increase was primarily due to expanded development activities.

"We expect this trend to continue through the remainder of 2004 as we seek growth through development opportunities in the United Kingdom and Pennsylvania, and through acquisition opportunities," the company reported.

At Multimedia Games, one of the country’s leading providers of so-called Class II gaming devices used primarily at Native American casinos, the company blamed the shortfall in earnings on "lower than expected results from our Class II operations."

Clifton Lind, president and CEO, said, "Our Class II operations were impacted by a decline in the number of player terminals deployed, and a lower-then-anticipated hold per unit, which we believe were primarily due to the ongoing proliferation of games that may not meet the legal requirements of Class II games, according to published guidelines established by regulatory."

Still, for the third fiscal quarter that ended on June 30, the company reported that the average installed player terminals reached 9,917, an increase over last year’s 8,683 machines.

In lowering its full-year guidance in earnings per share, the company said it was forced to recognize that there will be a delay in two significant contracts for Class II machines "which until recently was planned for" the fourth quarter. Also being recognized was the removal of Class II player terminals at one facility where new machines that may not meet regulatory guidelines will be installed.