Firm re-initiates gaming coverage

Friday, Nov. 28, 2003 | 10:54 a.m.

Investment banking firm Bear, Stearns & Co. re-initiated coverage on 16 gaming companies following a hiatus after gaming analyst Jason Ader left the firm early this year.

Mark Abramson, who will now follow gaming stocks for Bear Stearns, has a top rating of "outperform" for only three of the major gaming companies -- Harrah's Entertainment Inc., Station Casinos Inc. and Aztar Corp.

MGM MIRAGE, Mandalay Resort Group, Ameristar Casinos Inc., Argosy Gaming Co., Penn National Gaming Inc., Wynn Resorts Inc. and Kerzner International Ltd. have "peer perform" ratings.

Park Place Entertainment Corp. and Boyd Gaming Corp. have "underperform" ratings.

Three of the four rated gaming equipment makers -- International Game Technology, Alliance Gaming Corp. and Scientific Games Corp. -- have "outperform" ratings. WMS Industries Inc. was upgraded to "peer perform" from "underperform" as the company clears performance hurdles.

Trends in the industry are mixed, Abramson said in a research note.

The population aged 50 to 70 -- the age group with more leisure time and discretionary income for gambling -- is projected to increase by 50 percent, while social acceptance of gambling continues to climb, he said. Revenue growth in the industry also should be boosted by the implementation of sophisticated customer tracking technology.

"Companies are, for the first time, understanding with better precision some simple but essential dynamics of the business -- such as which customers play which games," Abramson wrote.

Offsetting those factors are rising expenses such as labor costs and higher casino tax rates as well as intensifying competition and an increasingly vocal minority of casino opponents. The risk of class action suits by addicted gamblers, while still small, is increasing, he added.