The Passed Seven
by Paul Larson (MF Parlay)

MARKET CLOSE          1/28/97       2/3/97
S&P 500 (SPX):       802.77       812.47  (+1.21%)
NASDAQ Composite:   1358.96      1364.52  (+0.41%)
CBOE Gaming Index:   230.14       223.49   (-2.89%)

Chicago, IL (Feb 19, 1997) -- For the third week in a row, the S&P 500 (Index Symbol: SPX) thoroughly trounced both the Nasdaq Composite and the Chicago Board Options Exchange Gaming Index (Index Symbol: GAX). The GAX is still up on the year by about 2%, but the SPX is up a whole 10% so far in 1997. Let's take a stroll down memory lane to when I first started writing this column and see where the indices were a scant 5 months ago:

Market Close         September 20  Today    Change
S&P 500:              687.02       812.47   +18.3%
Nasdaq:              1219.68      1364.52   +11.9%
CBOE Gaming Index:    262.42       223.49   -14.8%

The empirical data showing exactly how bad a bear market we have seen in the gaming sector is staggering. There is a full 33-point spread between how the S&P and the GAX have performed the past five months. If your portfolio is heavily weighted in the gaming sector and you have been underperforming the market, fret not for you are not alone. The gaming sector did get a shot in the arm a few weeks ago with the news of Hilton's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HLT)") else Response.Write("(NYSE: HLT)") end if %> hostile bid for ITT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ITT)") else Response.Write("(NYSE: ITT)") end if %> which set off a consolidation speculative frenzy. The buy-out rumors seem to have subsided recently with the rest of the gaming industry, but I think the consolidation we are seeing in the industry has just begun. Will this help the sector as a whole on Wall Street? Well, it can't get much worse! (Although, this Fool never says never).

Continuing in this vein, let's take a look at how some in the industry have also fared over this time from September 20:

Gaming Industry Hall of Shame

Symbol          Sept. 20   Today       Change
TOWVQ          1 13/16       5/8        -65.5%
CSDS          17 3/4       6 5/8        -62.7%
DJT           26 3/4       9 1/2        -64.5%
CSNO           6 3/8       2 13/16      -55.9%
PREZ           1 5/16     21/32         -50.0%
MIKN           9 1/8       4 5/8        -49.3%
AGY            7 1/4       3 3/4        -48.2%
BYD           10 1/2       5 3/4        -45.2%
HWCC           5 1/2       3 1/8        -43.2%
SLOT          61          38            -37.8%
LUCK           2 11/16     1 13/16      -32.6%
SODK          22 1/16     15 1/4        -30.8%
PLAY           7 7/16      5 7/16       -26.9%
AZR           10 1/2       7 3/4        -26.2%
GND           15 1/2      11 5/8        -25.0%
CMAG           3 3/4       2 13/16      -25.0%

This list only covers those gaming stocks that are down over 25% in this time frame. There are many others that are down less than this amount. Pretty impressive list of losers, no? If one wanted to make a similar list with the amount some of these stocks are off their annual highs, the list would be even uglier. For example, Stratosphere <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TOWVQ)") else Response.Write("(Nasdaq: TOWVQ)") end if %> is a full 95.5% off its annual high of $14. Major Ouch! I'll do a "Hall of Fame" list next week with those stocks that have actually done well since September 20. I guarantee, this Fool will have a much shorter job to do next Wednesday.

Two of our "Hall of Shame" members reported earnings this week. First, Grand Casinos <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GND)") else Response.Write("(NYSE: GND)") end if %> announced earnings of negative $3.39 for the fourth quarter of 1996. The reason for the large negative reporting is the fact that the company completely wrote off its investment in the bankrupt Stratosphere <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TOWVQ)") else Response.Write("(Nasdaq: TOWVQ)") end if %>. This one time write off of its 42% equity stake in and most of a loan made to Stratosphere resulted in a per share charge of $3.22. It is still very much in the air what is going to happen with the Stratosphere bankruptcy. There are substantiated rumors floating around that Grand Casinos is trying to renegotiate its previous bankruptcy agreement with Stratosphere's bondholders. Many Grand investors are hoping the company will "walk away" from the Vegas albatross, but it remains to be seen if this will happen. If anything, Stratosphere is now completely off Grand's books and will not effect Grand's earnings going forward, assuming the company makes no further investment in Stratosphere. As the saying goes, they have nothing to lose (with Stratosphere). Grand's earnings per share before pre-opening expenses, write-downs, and other one time charges was $.24 for the fourth quarter.

Other "Hall of Shame" member Trump Hotels and Casino Resorts <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DJT)") else Response.Write("(NYSE: DJT)") end if %> also reported earnings this week. Trump announced they lost $30.9 million, or $1.39 per share, in 1996's fourth quarter missing analysts' earnings estimates of approximately breakeven by a mile. The revenues and EBITDA (earnings before interest, taxes, depreciation, and amortization) for the quarter were $326.6 and $34.9 million respectively. the main impetus behind Trump's loss is the $1.7 billion debt the company is carrying on their books. The company had a net interest expense of $50.2 million in the fourth quarter, or 15% of revenues. While casinos do tend to be highly leveraged entities, Trump gets the gold medal for being the carrying the highest debt load in the industry. As such, the stock equity's portion of the company's losses and gains will tend to be exaggerated much more than "normal" casino stocks. In short, Trump's stock is more a derivative issue than anything.

Other quarterly earnings and red ink this week included:

Ameristar (ASCA):           $.02
    [ $.05 before charge ]
Argosy Gaming (AGY):        $.46
    [ ($.34) before charges ] 
Global Casino (GBCS):      $1.12
    [ $.01 before gain ]
Grand Casinos (GND):      ($3.39)
   [ $.24 before charges ]
Hollywood Park (HWPK):      $.15    
Riviera (RIV):              $.46
Sands (SNDS):               $.11
Sante Fe Gaming (SGM):     ($.62)
Stratosphere (TOWVQ):     ($3.46)
   [ ($.17) before charge ]      
Trump (DJT):              ($1.28)     

Sorry to cut this short, but I am being recruited to help reprogram the Motley Fool's message boards on AOL. It is a major task, and we need all the computing manpower we can get! 'Til next week, good luck!

Did you know. . .

The lower the denomination the slot machine, the higher the casino percentage hold tends to be? Most nickel slots put roughly 88% of all play back into paying winnings, quarters pay back about 92%, and dollar slots roughly 95%.

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