Gambling stocks tumble on economic woes - Business

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Jul. 01, 2008
Copyright © Las Vegas Review-Journal

Gambling stocks tumble on economic woes

Sands posts 19 percent decline with MGM, Boyd, Wynn not far behind

By BENJAMIN SPILLMAN
REVIEW-JOURNAL

If the stock market were a casino, investors in Las Vegas gambling stocks would be the bleary-eyed guy in the wrinkled suit watching helplessly as the dealer plucks chips from the felt.

Nine of 10 stocks on an index of publicly traded gambling companies lost value in June, including a 19 percent decline for shares in Las Vegas Sands Corp., the company that owns two of the swankiest resorts in Las Vegas.

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The numbers weren't much better for the other prominent companies on the Applied Analysis Gaming Index.

Shares of MGM Mirage, which owns 10 Strip resorts. including Bellagio, MGM Grand and Mandalay Bay, sank more than 15 percent in June. Wynn Resorts Ltd. fell more than 12 percent.

Myriad woes of the battered American economy -- overheated energy prices, an ice-cold real estate market and tepid consumer confidence -- took the blame for sucking the value from the nation's most recognizable gambling companies.

"I don't know if anyone could have predicted the current climate," said Brian Gordon, principal at Applied Analysis who compiles the monthly index. "The question is the duration of how long current events will persist."

Then there's the bad news.

It seems markets punishing gambling stocks due to the turbulent economy haven't yet come to grips with the $41 billion building boom that's expected to produce 30,000 more hotel rooms in Las Vegas by 2012.

That means by the time Americans recover from the current problems and find cash to resume their gambling habits in earnest, the Strip will be awash in new hotel inventory, which could make it hard for resort companies to keep room rates high enough to make properties profitable.

"The market hasn't really focused on that risk yet," said Bill Lerner, a senior analyst for Deutsche Bank who specializes in hotel and casino companies. "Some of these projects run the risk of not exceeding their cost of capital."

However, Lerner thinks investors are overreacting to the current problems.

Some of the steepest drops are commensurate with expectations the companies in question will lose 30 percent or more of their cash flow, a situation far direr than any predictions.

Through April, visitor volume in Las Vegas is off less than 1 percent. And gambling revenue was down just 1.3 percent on the Strip.

"I think (stock prices) are going down more than they should," Lerner said.

In practical terms, the loss of value means the most to major investors who have their portfolios tied to the performance of gambling companies.

The depressed prices may also make it more costly for companies to borrow money or buy and sell properties, Lerner said.

If the housing crash and subsequent fallout hadn't dried up the credit markets, the low stock prices could make mergers and acquisitions more likely.

"The problem is with valuation declining at the magnitude it has; it is very hard," Lerner said.

According to the index, Las Vegas Sands, owner of The Venetian and Palazzo hotel-casinos, fell 19.2 percent in June to an average price of $57.38 compared with May. The company is down 25.7 percent compared with June 2007, when the stock traded for $77.26 per share.

MGM Mirage was down 15.4 percent for the month with an average trading price of $42.22. Compared with June of last year when it traded for $82.52, the stock is down 48.8 percent.

Shares in Boyd Gaming Corp., owners of Main Street Station, Sam's Town, Gold Coast, Suncoast, The Orleans and the under-construction Echelon, among others, fell 14.6 percent for the month to $15.14 and are down 70 percent since June 2007.

Wynn Resorts is one of the more durable stocks on the index. Wynn shares fell 12.4 percent on the month to $91.41, but are down just 2 percent since June 2007.

The valuation of the entire 10-stock index is down nearly 12 percent for the month and almost 36 percent from a peak in October.

Contact reporter Benjamin Spillman at bspillman@reviewjournal.com or 702-477-3861.

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Please enter your name Name: Please enter your email Email: Please enter a comment COMMENTS : (word count limit is 300) You have reached the maximum number of words allowed Current Word Count: Note: Comments made by reporters and editors of the Las Vegas Review-Journal are presented with a yellow background. Harris wrote on July 01, 2008 05:53 PM: All you bloggers today, Run to Hoover Dam and jump off it, the sky is falling. SEE YA Harris wrote on July 01, 2008 05:53 PM: All you bloggers today, Run to Hoover Dam and jump off it, the sky is falling. SEE YA chris wrote on July 01, 2008 02:14 PM: Do you really think a public company like these will go under? Ya right..MGM still have the Arabs backing them up.Watch by years end these companies will trade high again... Average Guy wrote on July 01, 2008 01:17 PM: If we demanded free energy in return for the yucca mountain project- THAT WE ARE GOING TO GET NO MATTER WHAT POLITICIANS BS US TO BELIEIVE - then this state would explode with growth like you have never seen and would be better off than we ever have been... Free Electric for business and residents for the nuke waste of the country- a doable deal that Politicians are selling us out to corp american for nothing. John McBush wrote on July 01, 2008 11:51 AM: Funny thing is that Sheldon Adelson is the son of a cab driver from Dorchester, Mass. His roots scream Democrat, but he went over to the other side as he grew wealthy. But he's now confined to a scooter wheelchair, and will soon be wondering what his first name is. "Your first name is Kennedy, sir". Tim wrote on July 01, 2008 11:22 AM: This is increadible. I never would have thought that I would live to see this happening. We should try to pool together and help these local businesses out. Maybe a telethon?! I'm already donating my next $25,000 monthly dividend check to both MGM and Wynn (50/50). Maybe all you fellow Las Vegas citizens should do the same. SAVE THE CASINOS!!!! mike d wrote on July 01, 2008 08:20 AM: As an employee of a casino, I can only hope it turn around. They have started laying off people here. I hope the City can get innovative a get the tourist back. Lets have a gay marriages, strip club in casino, city wide tram system, super train to Orange County, and lottery. Good luck to all because its scary out here. Manny Cuaresma wrote on July 01, 2008 07:58 AM: This is just the start of the downfall. With the economy in shambles, stocks plummeting, the housing market in disarray, gasoline so high, and the glut of hotels in the market, not counting the mega hotels coming up; it's inevitable that Las Vegas hasn't seen the worst. With all these problems comes less jobs and lay off. It would even get worst. Reality wrote on July 01, 2008 04:59 AM: The reality sets in. Adelson being such a big supporter of Republicans is getting what he wanted, low taxes but also low income. The greedy are quite narrow minded, that can't seem to see past the dollar $igns. Congrats $heldon, you wanted Republicans and you got em. rtuttle@bloomberg.net wrote on July 01, 2008 04:34 AM: Stock prices anticipate future events. Visitor volume down 1% applies to the past. Keeping volume up by cutting prices in half is same as keeping prices up & volume going to half. Bottom lines are going to get hit hard either way. 1% change in the top line is 10% change on the bottom line. Remember the last time the scenario of energy shock, housing bubble, inflation hit (1974)? It took 13 years & two MAJOR recessions to work through it. Get ready fans! Oh, by the way. Nobody at the R-J seems to have noticed that the California wildfires have virtually wiped out tourism in Reno-Lake Tahoe. That situation is expected to continue rest of summer. Stock market has it right!