Gaming Industry Gets Scare as Casino Stocks Take Battering : Gambling: One market index has lost 25% of value and another is down about 21%. ‘It’s a blind panic,’ an industry analyst says.
NEW YORK — Recent upsets, which might threaten the gambling industry’s smooth expansion, and high share prices have sent casino stocks down faster than the broader market indices.
“It’s a blind panic,†where casino stocks are involved, said Jay Pearlstein, a Loomis Sayles & Co. analyst.
The Chicago Board Option Exchange Gaming Index, a price-weighted measure of 15 casino stocks, has lost more than 25% of its value in the last month. The USA Capital Gaming Index, a market-value weighted measure of 18 stocks, hasn’t done much better. It’s down about 21% since March 18.
By comparison, the Dow Jones Industrial Average is down 6% since March 18 and the Standard & Poor’s 500 Stock Index has lost about 5% of its value in the same period.
Gambling stocks were bruised last week when Missouri residents rejected a constitutional amendment that would have allowed slot machines on riverboats in the state, making investors skittish about the gambling industry’s ability to expand further. The CBOE Gaming Index fell 6% the day after the vote.
Massachusetts, Pennsylvania, Texas and Florida are seriously considering gambling proposals, but the vote in Missouri makes people stop to think whether residents in these states and others might not opt to keep gambling out, said Marvin Roffman, an independent casino analyst.
“What happened last week made a lot of people say, ‘None of these things are a slam dunk,’ †he said.
That came on the heels of a March 22 proposal floated by the Clinton Administration to impose a 4% tax on casino revenue that would fund welfare reform. “The excise tax certainly is a fear,†Pearlstein said.
Adding to concerns, the Securities and Exchange Commission is investigating possible manipulation of stock prices at Casino Data Systems, Casino Magic Corp. and Innovative Gaming Corp. of America in connection with their initial public stock sales in 1992 and 1993. The Minneapolis-based underwriters include R.J. Steichen & Co., Marche Securities Inc., Equity Securities Trading Co. and Summit Investment Corp.
Las Vegas-based Circus Circus Enterprises Inc. also shook investors a bit Tuesday, when it told analysts earnings might not meet estimates, Pearlstein said.
The company, which owns eight Nevada casinos, said that to develop new projects its administrative costs will increase in the first quarter ending April 30 to about $6 million from $4 million in the previous three months, Pearlstein said. Circus Circus’ interest expenses also are up because it has started paying down debt on its new Luxor hotel and casino in Las Vegas.
The forecasts prompted analysts to lower earnings estimates. Harold Vogel of Merrill Lynch cut his estimate for the first-quarter to between 40 and 42 cents a share from 45 cents. In the year-ago quarter Circus Circus had net income of 37 cents a share.
Competition in some new jurisdictions also is heating up, and cutting into profits. President Riverboat Casinos Inc. of St. Louis saw the operating revenue at its Biloxi, Miss., gambling hall plunge 40% to $12.9 million in the quarter ended Feb. 28 from $21.5 million a year earlier.
“Now there are a lot more players and it’s more competitive,†said Joe Milanowski, director of research at USA Capital Management Group.
According to some, the bad news was just an excuse to get out of an overvalued market segment. The CBOE Gaming Index was quoted at roughly 46 times earnings in mid-March, but has since declined to a more modest, but still pricey, 34 times earnings.
By comparison, the price-to-earnings multiple of the S&P; Midcap Consumer Products Index has been much more stable, falling to 19.5 from about 21 a month ago.
“I think they were vulnerable at the levels they were at,†Milanowski said of the gaming stocks. “I don’t think you could buy at those levels and make money.â€
Many gaming companies, however, are estimated to increase their annual earnings at rates well above 20% a year through 1995, Milanowski said. “Those companies are still fundamentally sound, and we still expect the gaming industry to grow geographically,†he said.
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