The Passed Seven
by Paul Larson (TMF Parlay)

MARKET CLOSE            5/16/97  5/23/97
Nasdaq Composite:       1340.73  1389.72 (+3.65%)
S&P 500 (SPX):           829.75   847.03 (+2.08%)
CBOE Gaming Index (GAX): 219.63   217.64 (-0.91%)

Chicago, IL (May 24, 1997) -- Forgive me if I have some feelings of deja vu this week. The markets had an exceptionally strong week with all time record highs being made left and right. The Chicago Board Options Exchange Gaming Index, on the other hand, choked up almost a percentage point loss the past five trading days. Market up, gaming down... Market up, gaming down... Yes, I remember all too well this trend we've seen the past eight months. The gaming index has bounced from its lows rather nicely the past few weeks, but this week it was back to business as usual.

It was yet another relatively quiet week in the industry with little substantive news to talk about. No mergers to announce this week. One of the hot topics our casino think tank on the Fool's AOL gaming industry message boards has been discussing is the most likely merger we will see in the gaming industry during the coming months. To say the least, we've had numerous valid and sensible speculations on where the next consolidation in the industry is going to happen.

Almost one in three people think that ITT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ITT)") else Response.Write("(NYSE: ITT)") end if %> is the most likely to pick up a gaming company in the near future as sort of "poison pill" against its hostile bidder HILTON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HLT)") else Response.Write("(NYSE: HLT)") end if %>. With the amount of cash ITT has raised by selling off its non-core assets, it is not hard to see why people are betting that ITT is the most likely to go shopping for another casino company.

As far as who is the most likely target of any acquisition, the guesses are all over the board. AZTAR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AZR)") else Response.Write("(NYSE: AZR)") end if %>, HARRAH'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HET)") else Response.Write("(NYSE: HET)") end if %>, and TRUMP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DJT)") else Response.Write("(NYSE: DJT)") end if %> have all had multiple "votes" as most likely to get picked up by a larger suitor. Nonetheless, there is little consensus on who is the most attractive buyout candidate.

If you are on the Internet and want to enter our little Foolish prognostication contest, email me the merger combination you think is most likely and I will add your name to the list of guesses we have running. Beyond being knighted king fortune teller, I am also giving away some official Fool golfballs to whoever's merger guess happens first. Weigh in with your thoughts and enter the contest! What have you got to lose?

My mailbox has been stuffed with Nevada natives raving about the new Odyssey slot machines that are being placed in more casinos around the state every day. The machines are personal computer based (a very new innovation in the slot industry) and the high resolution video graphics are catching a lot of attention wherever they are placed. The machines mark the debut of SILICON GAMING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SGIC)") else Response.Write("(Nasdaq: SGIC)") end if %> onto the slot machine scene. Expectations on the street concerning Silicon have been running exceptionally high since the company has a market capitalization of about $140 million with nary a dollar of trailing sales from operations.

It is hard to predict a sane valuation on the company absent any solid financial results to look at, but it seems that at least some of the hype surrounding the company's products is justified. This Fool is betting that Odyssey will give Wheel of Fortune, the smash hit distributed by IGT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IGT)") else Response.Write("(NYSE: IGT)") end if %> and ANCHOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SLOT)") else Response.Write("(Nasdaq: SLOT)") end if %>, a run for its money as the most popular new slot machine of the year. Forget the Indy 500, this race is going to be more interesting. It is hard to tell if Silicon's high valuation will send the stock against disintegrating into the wall or if the success of the machine will steer investors to the winner's circle. If nothing else, IGT and friends have a serious competitor to worry about.

On the earnings front, SHUFFLE MASTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SHFL)") else Response.Write("(Nasdaq: SHFL)") end if %> came out with earnings Thursday that met the First Call mean analyst estimate of $0.14 per share. Revenues were up over 35% to $7.4 million over year previous sales of $5.4 million, but net income was essentially flat. The company also announced its intention to buy back an additional $5 million worth of shares to supplement the 570,000 shares they already repurchased during the past month.

There is little argument that Shuffle's "Let It Ride" game is the most successful proprietary table game ever designed. Furthermore, the company's automatic card shufflers are attaining an impressive market share also unseen in the industry. Throw in the rags to riches story of the company's CEO John Breeding, a debt free balance sheet, and the recent stock repurchases and some investors get absolutely glossy eyed when talking about the stock. Likewise, at three times sales and twenty times trailing earnings, the stock cannot exactly be called a value. Much like Silicon Gaming, whether the company can parlay its success and fulfill Wall Street's lofty expectations will be interesting to watch in the coming months.

Earnings Summary

                           1997            1996
American Gaming (AGEL)    ($.19)          ($.06)
Call Now (CNOW)            $.29            $.14
Cantebury Park (TRAK)      $.13            $.15
Dover Downs (DVD)          $.16            $.12
Elsinore (ELSO)            $.11            $.02     
Full House Resorts (FHRI) ($.01)          ($.09)
Shuffle Master (SHFL)      $.13            $.14

Did You Know. . .
Alexander M. Haig, the former Secretary of State, is on the board of directors of MGM Grand <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MGG)") else Response.Write("(NYSE: MGG)") end if %>?

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