Search results matching tag 'gambling'

Casino stocks are a bad bet

Minyanville — Tue, 22 Sep 2009 13:44:00 GMT

This article is written by Minyanville's Josh Lipton

Investors have wagered hard on the gambling stocks but, at their current prices, it’s hard to see why stock pickers should double down on this bet. Jeff Macke vibed on this sector over the summer in, Don't Gamble on Casino Stocks.

Wynn Resorts (WYNN) made headlines over the weekend when the Las Vegas-based company said it has increased the size of the initial public offering in Hong Kong for its Macau unit by 25%, looking to raise up to $1.6 billion, according to Reuters. Wynn’s rival, Las Vegas Sands (LVS), is also busy, hoping to raise $1 billion to $2 billion through the sale of a stake in its Macau operations, possibly at the end of November.

Investors have gone all-in with the gambling stocks: Over the last six months, Wynn is up 232%, MGM Mirage (MGM) has skyrocketed 329%, and Las Vegas Sands has surged 673%.

Why the enthusiasm? The stocks have run off the bottom as investors bet on better times ahead for the consumer. Also, there's now less fear about these companies going belly up.

However, casino analysts remain cautious, for good reason.

Yes, Macau is showing signs of improvement, but Sin City still confronts a range of challenges -- and those hard headwinds, coupled with unattractive valuation, make it hard to see how the gambling industry is a smart bet right now.

One reason for optimism about the casino operators: Analysts note that these companies, while highly leveraged, have worked hard to strengthen their balance sheets.

“A lot of these companies have very stressed out balance sheets,” says Robert LaFleur, casino analyst at Susquehanna Financial Group. “As a result of refinancing activity and some equity raises, they have gotten into much better shape recently.”

There's also been better news lately out of Macau, analysts say, with an easing in visa restrictions so more gamblers can spend their paychecks at the slot machines and blackjack tables. Macau is China’s only gaming destination, and it benefits from the booming middle class and high population density in that area of the world, notes Morningstar analyst Michelle Chang.

Macau is within a three-hour flight of more than one billion people and a five-hour flight of more than three billion people. Little wonder then that Macau surpassed the Las Vegas Strip as the largest gaming market on the planet.

The growth in Macau is positive news for casino operators with exposure to the area, such as Wynn Resorts and Las Vegas Sands. However, domestic gambling companies like MGM, which are more dependent on Vegas than far-flung Macau, face potentially tougher times.

“Las Vegas still has numerous problems it has to deal with,” LaFleur tells Minyanville. “Visitor volumes to the city have returned to normal levels from some of the displacement in the fall but room rates, which are a key contributor to profits for Las Vegas operators, are very low.” The analyst adds, “Also, there is a series of properties opening up toward the end of the year, which adds supply to the market. So we have a very soft room-rate environment right now with the potential for new supply coming online.”

LaFleur mentions an additional worry: It remains to be seen how strongly the important convention business snaps back.

“Prospects are better now than they were six months ago, but it is hard to judge based on the past couple months because the summer isn’t a big convention time in Vegas,” the analyst says.

As for American consumers, while they will always seek out a night of entertainment, it’s hard to imagine them spending money like they once did any time soon. After a generation of go-go spending and borrowing, consumers have rediscovered the merits of prudence and thrift.

Gary Shilling, of A. Gary Shilling & Co., notes that many Americans have maxed out their credit cards as lending standards tighten and delinquencies mount. Meanwhile, he says, widespread layoffs persist, benefits have been trimmed, and finding new work for the jobless is extremely difficult.

The net effect of all this bad news? The consumer has had no choice but to retrench -- hard. The average savings rate rebounded from about 1.7% in August 2008 to 5%, according to the Bureau of Economic Analysis. Shilling forecasts an average one percentage point rise in the savings rate annually, raising it to 10% in 10 years.

It makes sense that Americans would be more interested in repairing their personal balance sheets than playing poker, but that isn’t good news for companies in the gambling industry. Revenue per available room in Vegas will likely be $77 in 2009 versus $119 in 2007, estimates Bill Lerner, an analyst with Union Gaming Group.

Finally, turning to valuation, gambling stocks are looking pricey, at least when judged by certain measures: The sector now trades at 24.33 times expected earnings over the next 12 months versus 15.08 for the overall market, according to Bloomberg data.

For those investors that want to carve out positions in the industry, a better bet could be to try and find opportunity among the regional operators, says LaFleur.

“The regional gaming markets have been performing better than destination-oriented markets like Las Vegas and Atlantic City,” he says.

For example, LaFleur is telling his clients to commit capital to Isle of Capri Casinos (ISLE), a Missouri-based company with a market cap of about $380 million.

“It has a very good cash flow generation outlook, and we expect the company to prudently deploy capital,” he says. “It is the one we’re comfortable recommending.”

No positions in stocks mentioned

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Gambling downturn puts states on a losing streak

Minyanville — Tue, 11 Aug 2009 13:49:00 GMT

This article was written by Minyanville's Andrew Jeffery

Apparently, when times are tough, Americans are less inclined to burn through their precious dollars at slot machines and blackjack tables.

As consumers across the country readjust their spending habits to the new reality of less readily available credit and a weak job market, trips to Vegas, Atlantic City, and the local riverboat are getting the ax. The Wall Street Journal reported yesterday that, after dropping 2.2% in 2008 from the year before, state gambling revenue was weak again during the first 6 months of 2009.

Casino companies, too, are smarting, with Las Vegas Sands (LVS), MGM Grand (MGM), Wynn Resorts (WYNN), and Boyd Gaming (BYD) all off sharply from their 2007 highs. Most of the stocks, however, have had a banner year in 2009: Wynn Resorts is up over 300% since its March lows, while Las Vegas Sands has spiked almost 600% since the spring.

The downturn has been particularly acute in Nevada and Illinois, where the gambling trade slid at a faster clip than did the states' overall revenue. In Illinois, cash siphoned from casino profits tumbled a whopping 23.8% compared to last year, while the state’s total revenue dropped 9.1%

The casino trade, however, isn’t hurting everywhere: Maine, Pennsylvania, and Oklahoma all saw gambling revenue jump by more than 20% over last year’s total. Still, all 3 of those states experienced drops in overall revenue.

The general decline of the gambling industry over the past 2 years has come at a time when states were hoping to tap into consumers’ penchant for risk-taking to offset falling tax receipts and rising debt costs. Minyanville’s Kevin Depew touched on this subject in Five Things: Secular Risk Aversion yesterday, which lays out how this shift away from risk-taking isn't just some passing fad, but a structural shift in consumer behavior.

This trend doesn’t bode well for cash-strapped states, many of whom face steep budget shortfalls. Some lawmakers in California -- which just recently stemmed the bleeding from a disastrous bout with a wrecked budget -- are exploring other, more exotic sources for new income.

As our economy becomes ever more dependent on government-directed spending, Americans can expect more of one of life's few certainties: Taxes. Already, Nevada is planning to hike sales and payroll taxes this year to combat its cash shortfall.

This trend is likely to pick up steam as state and local treasuries strain under a growing burden of service obligations and legacy entitlements. After all, they're taking their cue from Washington -- what else can we expect?

No positions in stocks mentioned

Don't gamble on casino stocks

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Do you suffer from money delusions?

Catherine Holahan — Mon, 29 Jun 2009 18:13:00 GMT

Are human beings hard-wired for financial folly?

Yes, according to an article in this month's issue of Scientific American. Behavioral economists and scientific researchers interviewed by the magazine say human brains simply can't account for inflation.

According to the researchers, humans suffer from a biological flaw called "money illusion." To put it simply, our brains get excited when we receive large sums of money, even when prices have increased sufficiently to prevent any real gains in purchasing power. The human mind is simply fascinated by more money, even when it's not worth any more.

If you've followed the markets at all in the past year, you probably know this intuitively; people buy when it seems like everyone is buying and they sell when it seems like everyone is selling. We are motivated by fear, greed and, perhaps above all, group-think. It's in our DNA.

So how do we make sound financial decisions when our very brains may be conspiring against us?

Well, we can try to ignore the masses. Hedge fund investor Mark Spitznagel -- a protégé of "The Black Swan" author Nassim Nicholas Taleb -- made a fortune by following his mentor's advice and betting on volatility when most folks were betting that the market would continue to steadily march upward. We can also try to anticipate the "irrational" actions that certain news might spur and invest accordingly. We can force ourselves to behave in a contrarian fashion, learning to stomach the small losses that most people shy away from for emotional reasons in order to achieve larger gains down the road.

Or, we can rely on the government. Some recent regulations enacted by President Barack Obama and Congress are aimed at forcing people to behave more rationally with their finances. The new credit card law, in particular, aims to keep people from making poor decisions based on emotion. Just because we know intellectually that that new credit card's low interest rate is just an introductory offer doesn't mean, however, that everyone will be able to overcome the emotional allure of temporarily cheap cash.

As a last resort, we can try to short-circuit certain irrational parts of our brain. It seems there's a troublesome area behind our forehead that is easily stimulated by quantity over worth. However, no insurance plan -- or doctor for that matter -- is offering to cover or perform such a surgery. At least, not yet.

Take this quiz to find out how emotional an investor you really are.

Can Bethlehem help steel Las Vegas Sands?

Matt Koppenheffer — Thu, 21 May 2009 21:52:00 GMT

In a throwback to a time when Pennsylvania was known for thriving steel-making towns, Las Vegas Sands is set to open Sands Casino Resort Bethlehem in the renovated Bethlehem Steel plant.

The $743 million project is very well placed as it is closer than Atlantic City to most people in New York and northern New Jersey. And while a tough economy like this may seem like a bad time to open a new casino, Pennsylvania's budding gaming industry -- which was only legalized in 2004 -- reported year-over-year growth of nearly 14% in April.

Sands Bethlehem is just another step that Sands has taken to further diversify itself outside of the Las Vegas Strip. Strip giant MGM has shown how a heavy debt load and an over-reliance on one geographic area can lead to grasping at straws. Sands and Wynn, on the other hand, haven't had a fairytale rid e through the recession, but have been buoyed by their significant exposure to non-Vegas markets like Macau. Gaming companies like Ameristar and Penn National, neither of which has any Strip presence, have been holding up quite well during the storm.

As I've noted in the past, the Motley Fool's CAPS community hasn't had a particularly sanguine view of the casino industry. And Las Vegas Sands -- which sports a two-star rating out of a possible five -- is towards the bottom of the community's list. In fact, just recently Frenchyx, one of CAPS' All-Stars, rated the stock an underperformer citing its debt load and reported losses. Given the economic uncertainties and that heavy debt burden, I can't completely disagree.

At the same time though, I really like Sands' property portfolio, which includes the Venetian and Palazzo in Vegas; Sands, Venetian, and Four Seasons in Macau; and now Sands Bethlehem in Pennsylvania. And the company has plans for further development in Macau as well as more diversification through a project in Singapore.

I fully expect that Sands could continue to take some lumps, but for those with a stomach for risk, I wouldn't wipe this stock off the radar.

Matt Koppenheffer is a Top Stocks blogging partner.

MGM shares fall on road to recovery

Kim Peterson — Wed, 13 May 2009 18:16:00 GMT

Investors are folding on MGM Mirage (MGM) Wednesday. The stock is down more than 20% after the casino operator disclosed plans to raise $2.5 billion through stock and bond offerings.

The company is drowning in $14 billion in debt, $1 billion of which will mature this year. The new stock offering isn't pretty, but it's another step toward getting this company back on its feet.

MGM is trying to recover after its ambitious CityCenter project (pictured) in Las Vegas hit the skids. The government of Dubai was a business partner in the massive project, which will have several hotels and condo complexes, but Dubai sued MGM, accusing it of mismanagement. Things got so bad that construction was about to be stopped altogether.

MGM and Dubai worked out their differences last month and even got their lenders to fully fund the rest of the CityCenter project. And now, MGM is able to wiggle out of some pressing debt obligations.

Still, an analyst at Bernstein Research said investors should stay away from the stock until management figures out how to become profitable rather than just staying solvent.

Image credit: Stephan F. Steinbach Gollogly, GNU free documentation license

New competition for Vegas casinos draws analyst concern

Profit in casino management, not casinos

MGM Mirage, desperate for cash, suffers another setback

Kim Peterson — Fri, 10 Apr 2009 16:39:00 GMT

Poor MGM Mirage (MGM). The company is stuck with $13.5 billion in debt, and is trying to finish construction on its massive CityCenter development (pictured) in Las Vegas.

The $9 billion CityCenter was supposed to be Las Vegas' most ambitious endeavor, Reuters reports, but it has become a symbol of how badly the economic downturn has hurt the city.

MGM Mirage partnered with Dubai World, an investment group owned by the Dubai government, on the 67-acre project. But Dubai World wants out. And CityCenter needs a $70 million payment by Monday or construction shuts down. So, like a frustrated blackjack player at 3 a.m., MGM is desperate to find more money.

The latest setback: Colony Capital has pulled out of talks about a potential investment in the MGM. Colony had been mulling a joint investment with an Australian gambling company, which has also backed out.

Now, MGM is trying to renegotiate its debts. It needs $800 million to access a $1.8 billion credit facility in order to complete the project, according to Reuters. If CityCenter is too big to fail, as one professor in Nevada put it, perhaps MGM will find a sympathetic ear with its lenders.

Image credit: Stephan F. Steinbach Gollogly, GNU free documentation license

Profit in casino management, not casinos

7 high-yield dividend stocks for the current market

Douglas McIntyre — Mon, 30 Jun 2008 12:50:00 GMT

Investors chase high dividend stocks with stable earnings when they are concerned about where to put their money. Which dividends appear safest?

We looked for stocks with dividend yields north of 4.5% (above 10-year T-Note) as the cut-off and those who are expected to see earnings remain ample to maintain the numbers. We had to eliminate everything tied to financial stocks in this climate as many dividends there are trimmed. We also had to eliminate anything tied to high volatility and anything tied to auto's. We screened many others, but here are seven stocks with dividends that we think will either stay the same or grow in the coming year.

24/7 Wall St. created a list of defensive stocks for 2008, and this is an update:

Altria Group, Inc is one of the old defensive stocks in a defensive sector: good old investor-friendly and cancer-causing tobacco. The company recently split off Philip Morris International unit and is in the midst of a buyback and restructuring. This company didn't drop the dividend when the stock was butchered in the 1990's, so now that its business is stable it's a safe bet that it will try to keep its dividend no matter what. With a $1.16 dividend (annualized) you have a 5.4% yield as of today and the $1.67 EPS estimate for 2008 and $1.84 EPS estimate for 2009 may actually leave more room for that dividend to increase rather than just stay the same.

Apartment Investment & Management Co. is one of th larger apartment-REIT's out there, and it is diversified on property scales and by geography. REIT's also have to pay out 90% of their taxable income to shareholders in the form of dividends. While apartments have not at all been immune from late-pays, the credit crunch, and the soft economy, the one area that sane people can't eliminate is their roof. Unless they want to be homeless, destitute, or back with mom and dad, the public has to live somewhere. Unfortunately that has not translated into share appreciation as this has lost more than 1/3 of its value. Its $2.40 dividend does seem sustainable with expected FFO (equivalent to EPS) of $3.25 in 2008 and $3.41 in 2009. Because the price has come off this much, its current dividend yield is almost 6.8%. [readmore]

AT& T and Verizon Communications are both believed to have safe and stable dividends. Out of the two, Verizon is in the midst of a larger acquisition. It is not expected to tie up all the cash that would have been applicable for the dividend, but this does make AT&T as the leader now that its recombination of BellSouth, SBC Communications and the old AT&T are all Ma-Bell once again. AT&T has a $198 Billion market cap, its dividend is currently $1.60/annualized (4.60%), and forward income estimates of $3.01 EPS for 2008 and $3.38 for 2009 make the dividend more than sustainable for AT&T.

Dow Chemical Co is perhaps one of the least exciting of industries, but because it has a monster track record and it has to keep running whether the economy is good or bad (with profits) this one made the list. The company's $1.68 dividend (annualized) generates an approximate yield of 4.6%. The reason this has made the cut in the 4.5% yield threshold is because the stock is so far off of its recent highs. At $35.10 (Thursday close), its shares are down from almost $48.00. With over $3.00 in projected EPS in both 2008 and 2009, its $1.68 annualized dividend doesn't look in jeopardy. When you consider its recent flurry of price hike announcements and a perception that the pricing power will be able to stick, that seems even more likely today.

Duke Energy Corp. is one of the top ten electric utilities in the U.S. with a market cap north of $20 Billion. Its main operations are in the Carolinas with smaller presence in Ohio, Indiana, and Kentucky; and it has some Latin American exposure as well. The utility isn't immune from current issue, and while its debt-to-equity is lower than many it has lower valuation multiples than many peers (part because of restructuring). But one things that utilities have historically sought is to be steady dividend payers, and they hate lowering dividends. Earnings estimates of $1.28 EPS in 2008 and $1.35 EPS in 2009 should allow this giant electric utility to keep on paying out a $0.92 annualized dividend even if it does have to eat some higher costs that can't be entirely passed down to consumers.

Senior Housing Properties Trust has been one of the more reliable senior care facility operators and REIT compared to many peers of late. This sector even fits within our "secular trend" sector as the elderly care facility sector has far more future demand than current and planned supply when you look at the managed elderly care facilities. Its FFO (EPS equivalent) estimates of $1.71 for 2008 and $1.79 for 2009 should allow the company to maintain its $1.40 (annualized) dividend. Because the company has made an acquisition and financed it with a dilutive secondary offering, we are not expecting the real earnings jump to come that would increase dividend-eligible income (90% for REIT's) until 2010 or 2011. But the income is there to maintain its dividend and the company would likely rather sell stock or take on light debt rather than to cut its dividend to holders. This one isn't without any risk, but as it is in the middle of a longer-term range and as the company has been a stable operator of nursing homes where others haven't done as well we feel the company can maintain its high dividend.

Douglas A. McIntyre blogs for Top Stocks and its an editor at 24/7 Wall St.