Wednesday, Oct. 9, 2002 | 10:43 a.m.
SUN STAFF AND WIRE REPORTS
MGM MIRAGE, Harrah's Entertainment Inc., and Mandalay Resort Group shares fell this morning on investor concern over a decline in hotel room rates in Las Vegas and lower earnings for riverboat casinos in the Midwest.
MGM MIRAGE shares fell $1.98 to $32.52 as of 11:34 a.m. Eastern time in New York Stock Exchange trading. Harrah's fell $2.04 to $46.66 and Mandalay declined $1.94 to $30.46. Riverboat operator Argosy Gaming Co. fell $1.73 to $18.08.
Argosy said Tuesday that its third-quarter profit missed estimates because of higher taxes and competition in the Illinois market, where it runs two riverboats. Mandalay Resort Group shares were cut to "neutral" from "overweight" by J.P. Morgan Chase & Co., citing a reduction in daily rates by the largest owner of hotel rooms on the Las Vegas Strip.
"Argosy is one of the largest and most visible riverboat companies, so their warning is taking down other riverboat owners," said J.P. Morgan Chase & Co. analyst Harry Curtis. "Mandalay Bay isn't showing very strong pricing power in October when the expectation is that they would, so that's taking down the Las Vegas stocks."
Curtis said Mandalay was forced to discount rooms at its Las Vegas casinos, including Mandalay Bay and Luxor, because the company failed to predict the weak demand for travel around the anniversary of the Sept. 11 attacks, when people were reluctant to fly. MGM MIRAGE has been able to book more rooms to convention goers at higher rates than Mandalay, Curtis said.
Harrah's fell despite news that investment research firm Zacks & Co. has issued a "buy" recommendation on its stock.
"This may be one of the market's safest bets," the company said. "It as become one of the market's brighter spots in this downturn, and (Harrah's) is the third largest casino operator in the group."
"Furthermore, (Harrah's) continues to expand its footprint by opening new casinos, such as the Rincon Casino and Resort in Southern California."
Analyst Marc Falcone of Deutsche Bank Securities earlier downgraded shares of Park Place Entertainment Corp. from "buy" to "hold" following the company's announcement last week that it would lower earnings estimates for the third quarter.
"While we recognize shares of (Park Place) are attractively valued, we believe there are a lack of near-term catalysts to move the needle meaningfully upward on the shares," Falcone wrote in a research note.
"We will look to get more aggressive pending signs that management is effectively executing on its plan to remove $100 million in costs from the company over the next year, as well as improved trends (in its) Las Vegas assets."
Falcone said he is also concerned about the effect that competition from the luxury Borgata hotel-casino and the possible legalization of casinos in nearby Pennsylvania could have on the company's Atlantic City properties.
Park Place stock traded this morning at $6.42, down 14 cents.
Casino stocks have risen this year because the number of gamblers to Las Vegas has returned to levels seen before the Sept. 11 terrorist attacks. Travel increased to riverboat casinos in the Midwest and to Atlantic City, both "drive-to" destinations.
The Standard & Poor's Supercomposite Casinos & Gaming Index has risen 37 percent this year, compared with a decline of 26 percent in the S&P's 500 Index.
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