Industry outlook strong

Tuesday, June 18, 2002 | 11:25 a.m.

Gaming stocks without any exposure in Midwest markets have been oversold, presenting buying opportunities for investors, Bear, Stearns & Co. gaming analyst Jason Ader said in an industry overview released Monday.

The Illinois Legislature recently passed a steep tax hike on gambling revenues, a situation that also threatens operators in Indiana and Iowa.

The increase has deflated share prices across the gaming sector over the last two weeks. Gaming multiples -- a ratio of stock price to cash flow results -- are "reaching the bottom half of the trough, in our view, even if we factor in a worst-case scenario in Indiana and Iowa," Ader said.

The outlook for Las Vegas remains strong, especially along the Strip, which has exceeded performance expectations, he said. Outside Las Vegas, "We believe underlying operating performance in most of the regional markets continues to be strong, which should benefit diversified operators such as Park Place and Harrah's Entertainment."

The industry's leading equipment makers, International Game Technology and Alliance Gaming Corp., have long-term growth potential despite concerns about so-called participation games, Ader said.

This month, Illinois-based riverboat casino operator Argosy Gaming Co. said it would stop offering most or all of its leased slot machines at two Illinois casinos. The cost-cutting move followed news of the state tax hike and sent shares of IGT tumbling. Participation games are leased to casinos and are considered more profitable for equipment makers than machines sold for a one-time profit.