Poor Earnings
Reports Contribute to Drop
Gaming stocks were routed
on Wall Street in August.The Dow Jones U.S. Gambling
Index tumbled almost 6 percent to close at 466.66,
and every major Nevada-based casino company came
out a loser.
In a rare reversal of fortune, the Standard &
Poor's 500, which closed the month at 1,220.33,
down 2 percent, outperformed the gaming index by
almost 3-to-1.
Over the past year, gaming stocks have outperformed
the S&P by 3-to-1, gaining 30 percent compared
with the S&P's 10 percent.
Altogether, the 52 companies included in the Dow
Jones gaming index dropped nearly $3 billion in
value, closing the month with market capitalization
of just over $47 billion.
Market capitalization is the total dollar value
of all outstanding shares.
The Applied Analysis Gaming Index, a weighted average
of nine gaming stocks compiled by the Las Vegas-based
financial consulting firm, dropped 10.6 points in
August, down 3.4 percent, following two months of
gains at the beginning of the summer.
Brian Gordon, a partner in Applied Analysis who
follows the gaming industry, said continued positive
earnings reports from the casino companies should
have helped the values in the index hold up in August.
"Analyst concerns about the performance of
the market may have triggered softer equity valuations
despite strong gaming numbers in June industrywide,"
he said.
Goldman Sachs gaming analyst Steve Kent, whose
in-house gaming index dropped 9 percent, said that
despite strong earnings reports, expectations built
over the past couple of years were hard to meet
or to beat.
"And, looking forward, there are not that
many catalysts in the next couple of months that
could send (industry fundamentals) upward,"
he said.
Deutsche Bank analyst Marc Falcone said that in
addition to unrealistic expectations, unnecessary
concerns with oversupply in Las Vegas clouded investor
judgments.
"There's a lot of inaccurate information in
the market that has caused problems for the stocks,"
he said. "The number and timing of new units
coming on the market, in particular, are vastly
exaggerated."
Concerns over the effect of Hurricane Katrina on
gaming companies with operations in the Gulf Coast
compounded difficulties for casino stocks as the
month closed. Harrah's was hardest hit, with a chance
its Grand Casino buildings may be beyond repair,
Gordon said.
"The unanswered question remains as to how
the damage will impact the balance sheet of the
world's largest gaming company and whether it moved
forward with its potentially permanently damaged
facilities," he said.
Mostly, the investor change in heart came from
two disappointing earnings reports early in the
month -- Harrah's Entertainment and Las Vegas Sands
Corp. -- and profit-taking, Gordon said.
"Harrah's and Las Vegas Sands did not surpass
market expectations by wide margins, which had become
the norm during the past several quarters,"
he said. "At the end of the second quarter,
Harrah's was integrating the newly acquired Caesars
Entertainment, which should produce in excess of
$80 million in merger-related benefits, but the
second quarter was slightly off analyst expectations.
"Las Vegas Sands was boosted by the performance
out of Macau, but there was softness related to
the Las Vegas Strip in terms of gaming volumes."
Also, the second-quarter performance of Wynn Resorts
Ltd. suggested Wynn Las Vegas' gaming revenue dropped
by nearly 50 percent from the first 34 days of operation
to the second month.
The Applied Analysis index consists of MGM Mirage,
Harrah's, Las Vegas Sands, Wynn Resorts, Boyd Gaming
Corp., Station Casinos, International Game Technology,
WMS Industries and Alliance Gaming.
Reno-based International Game Technology had the
strongest showing, closing at $27.72, flat for the
month.
WMS Industries and Alliance Gaming, had the weakest
performances, closing at $28.96 and $12, down 12
percent and 22 percent respectively.
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