Friday, March 7, 1997 | 11:59 a.m.
REVIEWING THE 1997 stock price performance of individual gaming stocks and their market sector is helpful in taking Wall Street's current temperature toward Southern Nevada's public companies.
The first one-half of the year is the time that gaming stocks do relatively better than the final half. Looking at this year's winners and losers, and speculating on the reasons, provides clues for the thoughtful investor as to what the balance of the year may hold. So far, a C-minus grade may be kind.
* The Gainers: ITT leads the 1997 derby because of the Hilton-ITT takeover scrap. Primadonna's above average market action may be a reflection of New York-New York's successful introduction.
* The Losers: The GAX has slipped into negative territory, reflecting the well-known factors of over capacity and excess competition in certain of gaming geographic markets. Grouped into the questionable outlook category are companies such as: Harrah's, Trump, Station Casinos, Grand and Boyd. It is somewhat surprising, however, to note that Circus is one of the laggards from a price standpoint.
Circus Circus announced its net income in the fourth quarter of fiscal year ending Jan. 31, 1997 declined by 54 percent to 16 cents per share compared with 35 cents during the year-earlier quarter. Revenues for the quarter declined 5.9 percent to $304.6 million and were depressed by extensive construction at Circus-Las Vegas and Luxor. Cash flow at these facilities declined by 38 percent in both cases. Alas, Circus' construction continues and the current quarter will therefore be similarly impacted. There is no uncertainty, however, as to how Circus' management views the price of its stock -- it bought some 6.4 million shares, worth more than $200 million, during the period. This is a whopping vote of confidence by Circus' management. It also indicates that it may be unconcerned with the eye-popping crowds now assembling at New York-New York. Nonetheless, thoughtful investors may wish to note that Circus owns 11,500 rooms, which sandwich New York-New York's north and south borders.
The stock deficits of IGT and SLOT are less easy to rationalize. In any case, 1997 may not, in my view, be one of gaming's stellar years. More likely, the consolidation phase of the industry will extend into 1998 and, perhaps, beyond.
Airport passenger activity for January 1997 increased by 7 percent over year-earlier levels, thus indicating that visitor volume in January may only show a gain consistent with recent months, that is, 4 percent to 5 percent. Las Vegas Investment Advisors' room and air fare surveys have indicated that the principal cost factors of a Las Vegas stay (room and air prices) are about unchanged during the last year. From these factors, I conclude that the business being generated by NY-NY may be materially hurting others' revenues.
Given this scenario, I am inclined to be skeptical about the first-quarter 1997 reports of the casino-based resort operators. Again, if such skepticism is warranted or becomes reality, it is doubtful if stock price trends will reverse themselves.
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