That thud? It's casino stocks crashing


Like a mistress who has lost her allure, the gaming industry is getting the cold shoulder from Wall Street.

Stock prices of the major casino operators have plummeted in 2008. In the past week, shares of publicly traded casino operators and slot-machine manufacturers sank to historic lows.

MGM Mirage, Las Vegas Sands Corp. and International Game Technology, once the sector's most expensive shares, are trading in the teens. Ameristar Casinos Inc., Pinnacle Entertainment Inc. and Boyd Gaming Corp. stock can be bought for pocket change.

JPMorgan gaming analyst Joe Greff often ends his investor notes by telling clients to remain on the sidelines when it comes to the gaming industry. Like they need any encouragement?

Other research analysts are advising folks to pass on the gaming sector.

"The stocks of casino operators have been taken to the woodshed in 2008 after a multiyear bull run in the sector driven by cheap debt, mergers and acquisitions, and consolidation," Macquarie Capital analyst Joel Simkins said. "Year to date, the eight casino operators in our coverage universe have declined 61 percent on average."

Nationwide, gaming revenues have disintegrated. Through August, Nevada casinos have won almost 7 percent less than they did a year ago. Atlantic City's casino win is down 5 percent. Gaming revenues have declined 18 percent in Illinois, 10 percent in Colorado, 3 percent in Mississippi and 1 percent in Indiana.

Macau gaming revenues fell 3 percent in September, the first time in more than three years the Chinese gambling market recorded a monthly decline. That news was not well received.

Deutsche Bank gaming analyst Bill Lerner said the Nevada companies operating in Macau -- MGM Mirage, Wynn Resorts Ltd. and Las Vegas Sands -- could take a double slap to the face. Strip casino managers he spoke with said September revenues declined in the last two weeks of the month when the national economy worsened. Visitation levels fell as rising unemployment and financial fears kept customers home.

Simkins added that September's numbers look worse than August for MGM Mirage and Las Vegas Sands.

"We expect a very difficult third-quarter performance from both operators as well as poor guidance," he said.

Lerner reduced the stock- price targets on several companies he follows. A quick turnaround is not in the forecast, even in the regional gaming markets.

But he offered a ray of sunshine to investors.

"If your time frame is reasonable, say 12 months, then these levels make a tremendous amount of sense," Lerner said. "If you have no tolerance for volatility, then stay away."

Howard Stutz's Inside Gaming column appears Sundays. E-mail him at hstutz@reviewjournal.com or call 702-477-3871.