Gaming industry: Gaming stocks rise sharply in '06

NEW YORK -- Stock values of the gaming industry's major companies experienced double- and triple-digit increases in their average daily prices compared with 12 months ago, data from December show.

But December also saw the beginning of sea change in control of two large casino operators and hints that others might follow along.

Applied Analysis, a Las Vegas-based financial consulting firm, compiles an index that charts the average daily stock prices of nine publicly traded gaming companies. The index reached an all-time high in the month because of the proposed $27.8 billion buyout of Harrah's Entertainment by two private equity groups and a planned management-controlled $4.7 billion buyout of Station Casinos.

"Gains within the gaming sector were driven by proposed ownership changes rather than operational performances," said Brian Gordon, a partner in Applied Analysis, said Friday. "Proposed privatizations were the principal drivers of valuation growth."

Gordon said the Applied Analysis index, which ended the month at an all-time high of 461.66 points, almost 39 points higher than November, mirrored the performance of gaming stocks on Wall Street. In November, the index jumped almost 42 points.

"Recent valuation rises also outpaced the broader market," Gordon said.

Deutsche Bank Managing Director Andrew Zarnett, in a report to investors on Dec. 20, said he expects the gaming industry to exhibit solid growth in 2007. Increased spending by casino patrons, he said, will continue to fuel solid gaming revenue increases.

"We expect this performance to continue to improve through the rest of the year and to experience an upswing in 2007 and 2008 as new projects (Caesars hotel expansion, Venetian's Palazzo and Wynn Resort's Encore) drive increased visitation," Zarnett said.

Other economic indicators weighed into the stock price valuations. Las Vegas visitor volume was reported at 3.4 million in October, giving the city a modest year-over-year increase of 1.1 percent for the first 10 months of 2006.

Meanwhile, in the locals market, consumer spending patterns by Las Vegas residents is off its record pace from 2005, according to Applied Analysis.

"Residential market conditions have likely played the largest role in the recent flattening growth curve," Gordon said.

The casino buyouts, which could both close in 2007, will change index's makeup since both casino operators will become privately held. Gaming analysts have predicted private equity firms may be targeting other casino operators as potential takeover targets.

Harrah's, which agreed to be purchased for $90 a share, experienced marked increases in its average daily stock price in October and November, when the buyout offer was first revealed. The company's average daily stock price in December was $80.81, almost 18 percent higher compared with December 2005.

Station Casinos' average daily stock price jumped significantly on the news that members of the Fertitta family, who took the company public in 1993, were looking to take it private once again. Station Casinos traded at $81.11 on the average during the month, 22.5 percent higher than November and 21.7 percent higher from a year ago.

Las Vegas Sands Corp. experienced the largest year-over-year increase. The company, which operates The Venetian and is building the $1.8 billion Palazzo, had its average daily stock price increase 130 percent from 2005.

In December, Las Vegas Sands, which was the only Nevada-based casino operator to land one of the five highly sought Pennsylvania casino licenses two weeks ago, traded on an average daily price of $92.28.

MGM Mirage's average daily stock price of $56.24 in December, a 17.5 percent jump over November and 52 percent higher than a year ago, was attributed to several proposed worldwide hotel development deals. In addition, Los Angeles-billionaire Kirk Kerkorian, the company's majority stockholder, boosted his holdings in the company.

Boyd Gaming Corp. was the only company tracked in the index with an average daily stock price off from a year ago. Shares of Boyd traded on an average of $46.02 in December, off 2.2 percent from last year.

Three slot-machine manufacturers had double-digit increases in their average daily stock prices, led by industry giant International Game Technology. The Reno-based company had an average daily stock price of $45.43 in December, 51 percent better than a year ago.

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