Gaming Index Declines for Second Straight Month

During the month of July, the Index fell 6.1 points, or 1.7%, as all its casino operators posted double-digit declines in stock value by the close of July compared to their opening-month values. More dramatic devaluations were reported toward the end of the month, suggesting the Index's value could decline in August as well, Applied Analysis principal Brian Gordon tells GlobeSt.com.

The 1.7% decline was in contrast to the S&P 500 daily average increase of 0.6% during the month. However, the Index remains up 11.6% over the same month of the prior year, outpacing the broader market. The S&P 500, when computed on a similar basis, was up a more modest 3.1%.

Applied Analysis principals Brian Gordon and Jeremy Aguero say investor concerns were heightened by sustained increases in fuel prices, speculation of shifts in industry fundamentals and increasing supply in the local's gaming sector, according to the report. "We attribute much of the sector's stock performance to a modest correction following relatively recent record-setting financial and stock performances," states the report. "Valuations and fundamentals expanded heavily during the six months following the shakeout from a post-hurricane season in the fall of 2006."

Only a few second quarter earnings reports by gaming operators in the Index (Boyd, Harrah's, Station) were released during the month of July. On Aug. 1, Wynn Resorts Ltd. reported its earnings Aug. 1, Las Vegas Sands will report earnings after the close of markets today (Wednesday, Aug. 2) and MGM Mirage will report earnings on Thursday.

Wynn Resorts, which opened its only casino (Wynn Las Vegas) in April 2005 at a cost of $2.7 billion, reported increasing sales and shrinking losses. The company posted a net loss of $20.1, or $0.20 per share, compared with a net loss of $41.8 million, or $0.43 per share for the same 2005 period. The company's adjusted net loss, which excludes $15.2 million in pre-opening expenses, was $4.9 million, or $0.05 per share. Net sales were $273.4 million, up 36% from the same period in 2005. Wall Street's expectation was for earnings of $0.05 per share on sales of $268.5 million.

Company chairman Steve Wynn countered talk of a softening market on Tuesday afternonn during a conference call with investors. "By each of our measures, performance is ahead of or equal to the best performance we've experienced since we've been opened," said Wynn. "Our non-casino revenue this summer is sharply ahead of last year as well as casino revenue, and that includes July."

Wynn's share price fell several dollars in last few days of July and closed out the month at $64.01. On Tuesday after the raw numbers were released, the company's share price fell $2.31 to close at $61.70. The conference call occurred after the close of markets. In late morning trading today (Wednesday), the company's shares were trading at $65.84, up $4.14 (6.71%)."

Boyd Gaming, which reported a 79% drop in second quarter net income, announced the sale of the recently-opened South Coast Hotel and Casino. The $600 million investment generated EBITDA of just $16 million during the first six months of 2006. Despite the drop in profitability in the quarter, revenue grew by 10.2% and company-wide EBITDA was up 5%.

Station Casinos Inc. posted a 25% jump in revenue during the second quarter but profitability fell 34% on higher expenses. Results included the recently-opened Red Rock Resort. The company's EBITDA was up 13%. International Game Technology, the world's largest gaming equipment maker posted a 6% increase in revenue in the second quarter and its gross profitability was up 8%.

Harrah's Entertainment posted revenues of $2.4 billion during the second quarter, an increase of 67%, but comparisons with the prior year are meaningless given the company's acquisition of Caesars Entertainment. Harrah's same-store revenues (properties owned and operating in both reporting periods) were up 5%. The company's net earnings were held back by corporate expenses, including project development costs.

The Applied Analysis Gaming Index contains nine casino operators who have substantial operations in Nevada. Companies like Pinnacle and Ameristar that do not have significant operations in Nevada are not included in the Index.