The Passed Seven
by Paul Larson (TMF Parlay)

MARKET CLOSE            6/6/97   6/13/97
S&P 500 (SPX):           858.01   893.29 (+4.11%)
CBOE Gaming Index (GAX): 213.84   220.88 (+3.29%)
Nasdaq Composite:       1404.84  1423.03 (+1.29%)

Chicago, IL (June 13, 1997) -- It was a good week to be in the market, to say the least. The S&P 500 is quickly approaching 900 while the Dow 30 is making an attack on 8000. Simply amazing. As fears of a federal interest rate hike abated, stocks took off. Interest rates are obviously important to stocks in general (lower rates make stocks a more attractive investment than bonds or cash), but low rates are excessively important to the gaming stocks. Since casino companies tend to be highly leveraged, lower rates means lower interest expenses on all that debt this sector carries. Low cost of capital is as important to this industry as low oil costs is to the transportation industry. Since it became evident this week that rates are likely to remain stable at relatively low levels, the GAX index fired up. Regardless, we still need another 110 points or so tacked on to this week's rise to reach the index level we had this time last year.

The long awaited Sunset Station opened this week in Las Vegas. The $200 million off-strip resort features a Mediterranean theme and is aimed at the local market in the south suburbs of the city. The casino is owned by STATION CASINOS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STN)") else Response.Write("(NYSE: STN)") end if %> and will be the fourth the company has opened in the greater Las Vegas area. All their Las Vegas casinos cater to locals and it will be interesting to see if the company can grow that particular market further. With anywhere from 500 to 1000 people moving to the city each and every day (amazing factoid, no?), this Fool thinks Station has a decent shot of being successful with Sunset. Let's also hope for Station's sake that Sunset Station performs better than their other new casino in Kansas City. While their Kansas City casino is among the largest in the country, the gaming revenues from the unit have been extremely disappointing.

Among the amenities at the new Sunset Station is a Kids Quest daycare and entertainment facility. NEW HORIZON KIDS QUEST <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KIDQ)") else Response.Write("(Nasdaq: KIDQ)") end if %>, which now operates three facilities for Station and has contracts for four more from the company, also announced two new contracts this week. The company will open units at the Soaring Eagle Casino in Michigan and the Treasure Island Resort and Casino in Minnesota. Considering the company currently operates only 15 units, the fact that Kids Quest has opened or landed contracts for seven units in the last two weeks is probably not a coincidence. The PRIMADONNA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRMA)") else Response.Write("(Nasdaq: PRMA)") end if %> incident I wrote of last week probably has something to do with this.

Looking back at Kids Quest's past financial performance, it is evident that the company has yet to deliver any meaningful profits to the bottom line. Many investors may remember the DISCOVERY ZONE (OTC: ZONEQ) debacle of a few years ago and may not be excessively impressed about a child care company. Kids Quest has a lot to prove before the company can take off, but the past few weeks may have put the "story" back into the stock.

COIN BILL VALIDATOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CBVI)") else Response.Write("(Nasdaq: CBVI)") end if %> has been a good performer of late. It was announced earlier this week that a group of management has purchased 75,000 of the approximately 2.75 million shares outstanding. As the old saying goes, insider selling can mean anything, but insider buying only has one meaning -- management thinks the stock is undervalued enough to put their own money on the line. The company is an important OEM to the gaming industry since the company's products offer a fast and cheap way to turn paper currency into slot change.

MONARCH CASINO & RESORT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MCRI)") else Response.Write("(Nasdaq: MCRI)") end if %> also had an interesting week since the stock was up over 50% on Wednesday alone. The move was a result of bullish comments the company's CEO made at Monarch's annual meeting. The company owns the Atlantis Casino in Reno, Nevada and expects that market to grow further in the coming years. This directly contradicts CIRCUS CIRCUS' <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CIR)") else Response.Write("(NYSE: CIR)") end if %> comments in their earnings conference call about Reno being a "zero growth" market.

The greater Reno area (including Lake Tahoe) is often overlooked in gaming circles. Where both the Las Vegas strip and Atlantic City bring in roughly $4 billion each in annual gaming revenue (with Las Vegas also receiving much larger amounts of hotel and entertainment revenue), Reno is roughly a billion dollar a year gaming market.

PLAYERS INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PLAY)") else Response.Write("(Nasdaq: PLAY)") end if %> came out with negative earnings of $1.41 this week. The huge loss was due to the one-time write off of their Mesquite, Nevada property. The company built the casino at a cost of nearly $90 million and sold it last quarter for less than half the construction costs a scant two years later. Ouch. The company is guilty of overestimating the gaming market for travelers from east of Las Vegas. Without the write off, the company broke approximately even. Analysts were looking for a small $0.02 loss from the company, therefore the results were actually slightly better than expected.

Finally, this week we saw that the CNBC effect is alive and well, even if the station no longer employs the infamous Dan Dorfman. Both AZTAR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AZR)") else Response.Write("(NYSE: AZR)") end if %> and TRUMP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DJT)") else Response.Write("(NYSE: DJT)") end if %> make significant strides forward after analysts on the cable station promoted the stocks. Respected value investor Mario Gabelli was seen saying "bet on Trump" to double. Trump's stock is up nearly 15% to 11 5/8 after his comments were aired.

Winners and Losers

This week's "Winners and Losers" should really be titled "Whoops, I made a mistake." This Fool's mistake? Not backing up my files frequently enough (and no, this isn't a paid announcement from Iomega). The new system I'm using to compile this data had something of a system crash on Monday morning. Since the last day I backed up my computer was Thursday, well, you get the picture. This week's listing is for moves made from Monday close to Friday close.

Top percentage movers (stocks over $1)

Winners                   Closing Price  Weekly Move
Monarch Casino (MCRI)       $4            +39.1%
Innovative Gaming (IGCA)    $4 3/4        +15.2%
Trump (DJT)                $11 5/8        +14.8%
Coin Bill Validator (CBVI) $13 5/8        +13.0% 

Losers                    Closing Price  Weekly Move
Butler National (BUKS)      $1 3/32       -16.7%
Acres Gaming (AGAM)         $7            -16.4%
Scientific Games (SG)      $20 1/2        -16.3%
Stuart Entertainment (STUA) $3 1/2        -12.5%

Earnings Summary

                                  1997      1996
      Gaming Venture (GVCU)       $.07      $.03
      Interactive Flight (FLYT)  ($.40)   ($1.03)
      Players Intl. (PLAY)      ($1.41)     $.12

Did You Know...
That the newly opened Casino Niagara in Niagara Falls, Canada is on track to have gaming win in excess of $400 million (American) a year? Only a handful of "big box" casinos in Atlantic City and Las Vegas take in more money than this.

© 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