Analysts project mixed earnings for major firms

By Liz Benston

Friday, April 9, 2004 | 10:38 a.m.

Several Wall Street analysts have raised their earnings estimates on major gaming companies for this year and next, citing the improving national economy as well as higher room rates and a strengthening convention business in Las Vegas.

Bullish outlooks for Las Vegas have helped push up gaming stocks this week, with many companies now trading close to their 52-week highs.

But analysts' earnings projections for the first quarter of this year compared to profits a year ago show mixed results for the top six companies -- a sign that improving trends are benefiting certain companies more than others.

Analysts' average profit estimates for the top six companies:

Harrah's Entertainment is expected to report earnings of 65 cents per share, about 12 percent below earnings of 74 cents per share in the first quarter of 2003. Three of 22 analysts raised their earnings estimates for the company in the past month.

MGM MIRAGE is expected to report earnings of 46 cents per share, a 15 percent increase from earnings of 40 cents per share a year ago. Six of 23 analysts raised their earnings estimates.

Mandalay Resort Group, which recently hiked estimates, was expected to report earnings of $1.05 per share, a 52 percent jump from earnings of 69 cents per share a year ago. Twenty of 23 analysts raised their earnings estimates.

Caesars Entertainment Inc., which recently hiked estimates, was expected to report earnings of 18 cents per share, a 29 percent increase from earnings of 14 cents per share a year ago. Twenty of 21 analysts raised their earnings estimates.

Station Casinos Inc. is expected to report earnings of 46 cents per share, doubling earnings per share of 23 cents a year ago. Three of 20 analysts raised their earnings estimates.

Boyd Gaming Corp. is expected to report earnings of 28 cents per share, falling 3 percent from earnings of 29 cents per share a year ago. One of 16 analysts raised their earnings estimates.

All the companies' stock prices have risen more than 50 percent in the past year, with Station Casinos' stock jumping more than 123 percent, the greatest of any major company. Mandalay Resort Group stock rose more than 122 percent, Caesars Entertainment stock rose more than 94 percent, Boyd Gaming stock rose more than 79 percent and both MGM MIRAGE and Harrah's stock increased more than 54 percent during the same period.

Whether companies will miss, meet or beat earnings expectations remains to be seen, though at least one analyst is predicting good things from several companies. Most major gaming companies are expected to report first-quarter earnings over the next couple of weeks, with Mandalay Resort Group reporting earnings June 3.

"They'll probably exceed expectations," Blaylock & Partners gaming and tourism analyst Ray Neidl said of the five largest companies. The "destination resort strategy" of MGM MIRAGE and Mandalay Resort Group "appears to be working," he said.

Meanwhile, Caesars Entertainment has lagged peers but "our expectations are low" and Harrah's is putting in a "solid" overall performance.

"Station is a superstar" in the locals market and the Thunder Valley casino it manages for an Indian tribe near Sacramento is doing very well, he said.

Two companies have already forecasted better than expected earnings in the past month.

This week, Mandalay Resort Group boosted gaming stocks when it announced that it would earn more than $1.10 per share in the first quarter ended April 30. That beat analysts' previous expectations of 84 cents per share for the first quarter.

Mandalay attributed the increase to higher room revenue driven in part by traffic at Mandalay Bay's new hotel tower and retail mall.

The company's Mandalay Bay, Luxor and Excalibur casinos are on track to produce record quarterly results, while results at Mandalay Bay could surpass last year's first quarter by more than 50 percent, officials said.

"These revisions reflect the current robust room demand environment on the Las Vegas Strip, as our room rate survey indicated last week," Merrill Lynch analyst David Anders wrote in a research note.

"We remain encouraged, as additional hotel towers at the Bellagio (owned by MGM MIRAGE) and Venetian get added throughout the year, that Las Vegas visitation will remain high, which bodes well for continued strength in room rates," Anders said.

Credit Lyonnais analyst Bryan Maher added that Mandalay's announcement "could be a precursor to good news from other Vegas-centric gaming companies like MGM MIRAGE and Caesars Entertainment."

"We believe this is due, in part, to many U.S. leisure travelers avoiding vacationing abroad given the persistent geopolitical concerns and a weakened dollar -- up until recently," Maher wrote in a research note to investors Tuesday. "Las Vegas clearly stands out to most adults as a viable option."

Other analysts confined their comments to Mandalay Resort Group, citing the particulars of the company's business.

"Given what we perceive to be a slowly recovering economy and significant positive momentum on the Las Vegas Strip, (the company's) core assets should continue to show solid same-store sales across all revenue segments," CIBC World Markets analyst William Schmitt wrote.

Last month, Caesars Entertainment said it expected to earn from 17 cents to 19 cents per share for the first quarter ended March 31, higher than previous estimates of 11 cents to 13 cents per share. The company primarily attributed the increase to stronger room rates in Las Vegas and better table game revenue nationwide.

Improving trends in Las Vegas will have varying degrees of influence over the major companies and especially Harrah's and Caesars, which do a significant amount of business outside of Nevada, said Bill Eadington, a professor of economics and director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada, Reno.

Even locals casino giant Station Casinos now generates tens of millions of dollars in management fees at its Thunder Valley casino in California, he said.

A large part of the earnings increases this year will be fueled by the improving economy and travel outlook nationwide, he said. New projects under way at several resorts, designed to make them more competitive in time for Steve Wynn's upcoming megaresort in mid-2005, also will drive the increases, he said.

"One would expect these are trends that are going to get better rather than worse over the next 12 months," he said.

More important is whether such growth can be sustained and whether the market booms as much as anticipated after the expansion projects and Wynn Las Vegas are complete, he added.