Associated Press

Wed, Jan 7, 2009 (10:50 a.m.)

Casino operators are likely to continue to face difficult times on the Las Vegas Strip in 2009, but regional markets could offer a ray of hope, a JPMorgan analyst said Wednesday.

The gambling sector has struggled as consumers have curbed discretionary spending due to eroding credit, the ongoing housing downturn, escalating food costs and unemployment concerns.

Furthermore, airlines have made capacity cuts to cope with the worsening economy and higher fuel costs. If fewer flights are heading to Las Vegas, it is likely that the casinos and hotels are hosting fewer visitors there even as they have continued to expand, noted JPMorgan analyst Joseph Greff.

"The idea that gaming is a recession-resistant industry is not true...not anymore at least. This is likely due to the fact that gaming is a more mature and widespread form of entertainment than in prior U.S. downturns and, in the case of the Las Vegas Strip, a more expensive consumer discretionary good," Greff wrote in a note to clients.

The analyst predicted the Chinese gambling enclave of Macau, which houses properties belonging to casino operators including MGM Mirage, Las Vegas Sands Corp. and Wynn Resorts Ltd., will have essentially flat same-store gaming revenue growth due to tightened visa restrictions.

Greff anticipates regional markets may outperform in 2009 on a relative basis, partly helped by the fact that most visitors are locals who can drive to the casinos.

The analyst favors companies such as Wyomissing, Pa.-based Penn National Gaming Inc. and Las Vegas-based Pinnacle Entertainment Inc. due to their regional focus. He considers Wynn Resorts the best positioned in the Las Vegas and Macau markets

Greff has "Overweight" ratings on Penn and Pinnacle and a "Neutral" rating for Wynn Resorts.

Shares of Penn National Gaming dropped 30 cents to $21.91 in morning trading. Pinnacle Entertainment's stock slipped 68 cents, or 7.8 percent, to $8, while Wynn Resorts' shares slid $5.57, or 10.1 percent, to $49.71.