|NEW YORK, June 8, 1999 - Leading analysts examine the Gaming
Industry in the latest issue of The Wall Street Transcript. In a definitive
review of this sector for investors and industry professionals, the Transcript
1) In an in-depth roundtable forum, five prominent analysts:
Jason Ader of Bear Stearns, Joseph Coccimigho of Prudential Securities, Harry Curtis of Banc Boston Robertson Stephens, Brian Egger of Donaldson, Lufkin & Jenrette and Robin Farley of BT Alex. Brown examine online gaming, Australian-style slot machine games, convention business, Asian baccarat revenues, the outlook for and impact of Proposition 5, new casino licensing, building trends, Atlantic City, Detroit, small cap recommendations, and investor concerns.
Regarding the outlook for Atlantic City, Egger declares, ``The catalysts for growth are in place. The new-build projects planned by Mirage (NYSE: MIR - news) and Boyd (NYSE: BYD - news) on the H-Tract and by MGM Grand on the Boardwalk are, admittedly, very slow burning catalysts. The good news, or the bad news, depending on how one looks at it, is the prospect of no new supply until 2003, because of the relatively long gestation period to build new casinos. So for existing operators, we expect relatively stable supply and a perpetuation of the 3-1/2% revenue growth we've observed year-to-date.''
On the topic of Internet gaming, Curtis states, ``There's a bill going through Congress now, the Kyle bill, which would eliminate or try to eliminate gambling on the Internet. Now the interesting thing is, how do you enforce that?''
On the outlook for gaming in Detroit, Egger asserts, ``I'm also an optimist regarding Detroit. MGM Grand (NYSE: MGG - news) enjoys the opportunity, at its $200 million temporary facility, to generate an estimated $80 million in annual EBITDA, equivalent to a 40% cash-on-cash return.''
Regarding the impact of Proposition 5, Farley asserts, ``There's one situation that I think is a good comparable for concerns about how California gaming would affect Las Vegas, and that is Atlantic City. If you look at what happened in Atlantic City before tribal gaming in Connecticut, the prevailing thought at the time was that Connecticut was really going to destroy the Atlantic City market. In 1990, total gaming revenues in Atlantic City were around $3 billion. By 1998, they reached $4 billion.''
On gaming equipment stocks, Curtis states, ``Historically we have not been a bull on any of the gaming equipment manufacturers, for the simple reason that their futures have been tied to slow growth in the amount of casino square footage in this country. The replacement cycle has also been slower than expected. So these manufacturers have been scrambling for market share gain. The winner in that share game has been WMS (NYSE: WMS - news) because it's had the highest slugging percentage in producing games, particularly video games, that have been attractive to customers.''
Analysts remarks on specific companies include:
Ader states, ``Companies that we're recommending include Circus Circus (NYSE: CIR - news) and Park Place Entertainment (NYSE: PPE - news), based on the quality of the assets in the portfolio and the dynamics of the markets in which they're operating. In the case of Circus Circus, we talked at great length about why things are strong there and what our outlook is. The management teams for both companies have a solid track record of creating shareholder value. In our view, Circus Circus is worth $32-34 a share while Park Place Entertainment is somewhere between $14 and $16 a share. The return potential relative to the risk to take as a long-term investor seems most compelling for those two companies, in the universe of gaming companies that we follow.''
Coccimiglio declares, ``On May 12, we selected Harrah's (NYSE: HET - news) our single best idea. It's at the lowest multiple of cash flow of the group. Harrah's should generate about $200 million in free cash flow next year, and it has an ability to make some accretive acquisitions within the small cap group. Finally, I like the management team. I've always respected them and continue to do so.''
On small caps, Curtis states, ``We've recommended Hollywood Park (NYSE: HPK - news) for several reasons,including its growing cash flow, which is in part stimulated by a new management team that came from Horseshoe, and while there enjoyed some of the largest market shares. Again, the valuation is low at 5.5 times EBITDA. We also like Station Casinos (NYSE: STN - news), with a low valuation and exposure to primarily the local markets in Las Vegas, which continues to produce cash flow ahead of expectations.''
2) A review of management performance at 11 Gaming industry firms queried market insiders about the ability of management teams to create shareholder value. In a sector where many management teams were praised, a few CEOs merited accolades.
Solomon Kerzner, Chairman and CEO of Sun International (NYSE: SIH - news) was cited by an industry executive. ``Solomon Kerzner, CEO at Sun International, is now moving big league. He's done an absolutely outstanding job at Paradise Island. It is really top-tier. He just announced a deal to buy the Desert Inn in Las Vegas last week. He is certainly an accomplisher.''
Anchor Gaming (Nasdaq: SLOT - news), headed up by Stanley Fulton, Chairman, and Michael D. Rumbolz, President and CEO, have built a solid organization, notes a buy sider. ``The great thing about Anchor Gaming is that you've got Chairman Stanley Fulton there. He's got great vision and great strategy imbedded into his mind, but he left the younger guys that he's got working for him to do their jobs. He's been incredibly successful doing that.''
3) Gaming Stocks.
Dennis Forst of McDonald & Company states, ``International Gaming Technology (NYSE: IGT - news) is at a very attractive valuation level. The caveat is that I don't know when investors are going to appreciate IGT's position, and the strength of its business.''
4) Outlook for Gaming Stocks.
David Anders of Credit Suisse First Boston declares, ``For the remainder of 1999, we would like investors to focus on Park Place Entertainment. We think the opening of Paris will be a catalyst for investors to start looking at this name and that they will ultimately realize that it has powerful free cash flow. We're looking for $1.20 in estimated 2000 free cash flow per share.''
5) Michael Rumbolz, CEO of Anchor Gaming, discusses the recent acquisition of Powerhouse Technologies, his firm's two casinos in Colorado, innovations to existing gaming devices and the outlook for his firm. Regarding further M&A opportunities, he states, ``We will continue to look at other areas of the gaming industry, both domestically and internationally, to provide us additional opportunities to reinforce our existing businesses and grow into new areas.''
The Wall Street Transcript does not endorse the views of any interviewee nor does it make stock recommendations.
|Also See:||Gaming Expansion to New US Locales Is Limited By Economics / Jason Ader / April 1999|
|Comments on the Gaming Industry: Big and Getting Bigger / Dr. Charles F. Urbanowicz / April 1999|
|Pathological Gambling Report Released / March 1999|