Analyst sounds alarm on leisure stocks

Salomon Smith Barney's Bruce Turner, the first financial analyst to suggest Stratosphere Corp. was headed for bankruptcy, is becoming increasingly pessimistic about gaming stocks.

Turner said he's made "several downward revisions" of his forecasts for earnings and stock values in the gaming universe due to economic uncertainty and slowing growth in the leisure economy.

"While we believe several names continue to represent attractive values with outstanding long-term growth potential, the leisure sector as a whole remains a high-risk investment during uncertain economic times and should generally be avoided," he said in a report issued Friday.

"Salomon Smith Barney economic research indicates that the U.S. economy appears headed for a substantial slowdown ... (that) will impact the earnings of the companies in our destination leisure universe," he said.

Turner's warning comes less than two weeks before the opening of Bellagio, the $1.8 billion Mirage Resorts Inc. hotel-casino that will be the first of nearly $9 billion of new resorts scheduled to open in Las Vegas over the next two years.

If all are completed, the new projects will boost Las Vegas' hotel-room inventory 21,672 rooms, or 20.5 percent above the current total. That big runup in rooms comes on the heels of an expansion phase that saw more than 300 casinos spring up around the country, all competing with established gaming destinations such as Las Vegas and Atlantic City.

That domestic casino expansion, coupled with the worldwide economic slowdown that started in Asia, has lessened demand for Las Vegas visitations at the same time as established air carriers have cut flight service to Southern Nevada.

Even the openings of Stratosphere, Monte Carlo and New York-New York haven't been able to reverse the flat visitor growth trend that began about two years ago. The apparent negation of the "build it and they will come" theory of new mega-resorts has sent gaming stocks into a tailspin.

In contrast with past economic cycles, Las Vegas would suffer greatly from a new U.S. recession, according to many analysts. A domestic economic downturn that impacts the stock market would lessen consumer wealth and spending on non-gaming leisure activities, which have become increasingly important to casino companies' financial performance.

Restaurant, retail and entertainment spending -- which was expected to equal or exceed gaming revenue at some of the higher-end resorts -- would likely be curtailed.

Consumers who do opt to gamble are more likely to do so closer to home if they consider traveling to or staying in Las Vegas too expensive.

A recession also likely would lead to a cutback on convention travel, which has become an core target market for some of the new resorts being built here.

Turner has cut his earnings estimates for Hilton Hotels Corp., which could receive a double whammy in the form of reduced business at its gaming properties and non-gaming hotels alike.

He's also trimmed his projections for Aztar Corp., whose aged Tropicana hotel-casino on the Strip is likely to lose additional market share to such new properties as Bellagio, Paris, Mandalay Bay, the expanded MGM Grand and The Venetian.

Turner predicted declining per-share earnings for Circus Circus Enterprises Inc., which will be saddled with an estimated $2.5 billion of debt in 1999's second quarter, and Primadonna Resorts Inc., which is expected to lose market share at its three Primm, Nev., casinos when the new Las Vegas properties open.

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