The Passed Seven
by Paul Larson (MF Parlay)

MARKET CLOSE            2/26/97         3/5/97
S&P 500 (SPX):          805.67         801.99 (-0.46%)
Nasdaq Composite:      1340.57        1329.09 (-0.86%)
CBOE Gaming Index:      219.34         214.51 (-2.20%)

Chicago, IL (March 5, 1997) -- I feel like a broken record. Sometimes I wonder why I even bother to write something about the sector and the markets in general. For weeks on end (five to be exact) the large capitalization stocks that comprise the S&P have been the best performing stocks and the gaming stocks that comprise the Chicago Board Options Exchange Gaming Index (Index Symbol: GAX) have been the worst performing in our weekly comparisons. Each week I gloat about our sector's terrible performance and each week I say I do not know when the bear market in gaming is going to end. This week is no different.

Being highly regulated at the state level, the gaming industry has a feature that is good for investors and analysts alike -- we get mid-quarter snapshots on how individual units and regions are performing. Gaming revenues for February were released this week from Atlantic City. Even though February was three days shorter than January, total New Jersey gaming win was up 10% month over month. This is primarily due to the mild weather the region has seen this past month, but is also partially a seasonal effect. Casinos in America normally have peak activity in mid-summer and are slowest around Christmas with a gentle slope in-between. The symbols of the companies that controls the individual casinos are in parentheses.

Atlantic City Casino Revenues ($ thousands)
Casino                          Jan '97         Feb '97
Trump Taj (DJT)                 37,384         46,892
Caesars (ITT)                   28,760         33,857
Trump Plaza (DJT)               29,118         26,901
TropWorld (AZR)                 29,079         27,339
Showboat (SBO)                  26,284         27,070
Bally's Park Place (HLT)        26,248         26,318
Harrah's (HET)                  24,208         25,737
Trump Castle (DJT)              20,578         20,024
Sands (GBY)                     19,701         18,699
Hilton (HLT)                    18,891         17,276
Resorts Int'l (SIH)             18,610         20,063
Claridge (private)              11,634         13,574

Total                          288,283        305,967

Speaking of Atlantic City, the Claridge Hotel announced this week that it is backing out of its bankruptcy filed a few months ago and that it has paid its bond payment due this month. The bankruptcy filing is being canceled because of a rebound in cash flow at the unit as well as acquisition negotiations the company is in with Hilton <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HLT)") else Response.Write("(NYSE: HLT)") end if %>. One look at the table above will illustrate the coastal market share Hilton will gain if the company does indeed succeed in acquiring both Claridge and ITT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ITT)") else Response.Write("(NYSE: ITT)") end if %>. On the Hilton/ITT watch this week, Hilton's judicial bid to prevent ITT from amending its corporate bylaws to, among other things, increase the size of the board of directors in order to fight off the take-over failed. The saga is long from over, but this Fool is guessing ITT will figure out a way to shake off the hostile bid. As they say, stay tuned!

Southern Indiana was in the gaming news this week. Aztar <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AZR)") else Response.Write("(NYSE: AZR)") end if %> reported a significant increase in revenues for February at its Evansville, Indiana riverboat. This is on top of the improved results the company also reported for January. Combined revenues for January and February were $16.3 million this year versus $14.5 million the 1996 timeframe. Aztar has been the favorite pick of the infamous Mario Gabelli for many moons, yet the stock price remains at historically anemic levels.

Aztar's riverboat is along the Ohio river and has been effected by the recent storms and flooding in the area. Some of the area's riverboats, namely the Grand Victoria (owned by Hyatt), have been forced to close. Argosy Gaming <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AGY)") else Response.Write("(NYSE: AGY)") end if %> called CNBC's Joe Kernan to insinuate that Argosy's Lawrenceburg riverboat is open and has been benefiting by receiving some of the area's overflow traffic. Excuse me while I go get my obligatory grains of salt.

Casino Data Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSDS)") else Response.Write("(Nasdaq: CSDS)") end if %> has been at the vortex of some nasty news and stock declines of late. Charter member of our Foolish Gaming Industry Hall of Shame, Casino Data's stock is approximately 70% off its annual high after the company guided profit estimates for the 1996 fourth quarter into the red. Rumors abound of shareholder lawsuits and the company's president using the services of a bodyguard. The company had pushed its quarterly earnings release back several times, which is not normally a very good sign. In other words, it was just plain ugly. The company finally faced the music today and reported a net loss for the quarter of $.26 per share versus the mean analysts' estimate of a $.12 loss. Most of this loss was due to one-time charges related to inventory obsolescence and provisions for doubtful accounts. In this Fool's opinion, the company should be able to pull a profit at some point in the future, but the company's status as the prince to the slot machine throne currently owned by IGT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IGT)") else Response.Write("(NYSE: IGT)") end if %> is definitely out the window.

Circus Circus <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CIR)") else Response.Write("(NYSE: CIR)") end if %> also came out with earnings this week that seemed to disappoint the street. The company reported fourth quarter earnings of $.16 versus the $.35 the company reported a year ago. Results were down across the board. In Las Vegas, construction at Luxor, Circus Circus, and Excalibur hampered results. It is not unusual for a casino to see significant decreases in cash-flow during times of construction. Storms and flooding in Reno also hurt results at the company's two large casinos there. In Illinois, the company is also making local contributions equal to 20% of the operating cash flow that it wasn't making a year ago. On the good side, the company's half owned Monte Carlo resort in Vegas continues to show some attractive unit economics. The company did repurchase 6.4 million shares in the quarter, but borrowed money to do so. Bruce Turner of Salomon also downgraded the stock this week to a "Hold." The company's stock had been trading as high as 36 1/2 this month but is now trading at 30 1/8.

Time for this week's quarterly earnings wrap-up:

Autotote (TTE)                      ($.23)
Casino America (CSNO)                $.03
Casino Data Systems (CSDS)          ($.26)
Circus Circus (CIR)                  $.16
American Bingo (BNGO)                $.06

'Til next week. . . best of luck, Fool!

Did you know. . .

That casinos in Canada are government owned? Most casinos north of the border have management contracts with publicly traded casino companies, but the majority of the revenues flow into Canadian tax coffers.

© Copyright 1995-2000, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool. The Motley Fool is a registered trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us