Investors decided to take a chance on casino stocks Wednesday, as analysts pointed out positive trends in Las Vegas and raised earnings estimates on some names in the group.
J.P. Morgan analyst Harry Curtis said he sees pricing strength at Las Vegas hotels through June that could extend to the second half of this year.
He added in his Tuesday note that demand should drive casino play and lead to an 8 percent to 10 percent first-quarter increase in revenue per available room at Las Vegas Strip hotels.
That growth should contribute to 5 percent to 10 percent revenue per available room growth for the year, he said.
Hotel-casino resorts owned by Harrah's Entertainment, Caesars Entertainment, MGM Mirage and Mandalay Resort Group can be found along and near the Las Vegas Strip.
Station Casinos Inc. focuses on people who live and work in southern Nevada, as well as out-of-town visitors.
Slot machines and gambling equipment companies including Alliance Gaming Corp., WMS Industries Inc. and International Game Technology could also benefit from market expansion.
Deutsche Bank analyst Marc Falcone said in a Wednesday research note that the expansion of slot machines at Indian casinos in California and the legalization of gambling in Pennsylvania are not far off.
He advised investors to get into gambling equipment stocks to reap earnings from the group.
Curtis said revenue trends for hotel-casinos in Atlantic City, N.J., have been down 3.2 percent since the July 2003 opening of the Borgata casino hotel. They should improve slightly through the second quarter of 2004.
That growth will have to exceed 3 percent to offset the higher costs of operating in Atlantic City due to increased tax rate and non-cash employee wages, he said.
The Borgata was built by MGM Mirage and Boyd Gaming Corp. Other operators in Atlantic City include Caesars, Harrah's, Aztar Corp. and Trump Hotels & Casino Resorts Inc.
Curtis raised his earnings estimates on Mandalay to 95 cents a share from 90 cents, above the analyst mean of 84 cents.
Merrill Lynch & Co. analyst David Anders raised his first-quarter earnings projection Wednesday on MGM Mirage to 48 cents a share from 44 cents, and his year view to $1.94 from $1.79. He also increased his first-quarter earnings estimate on Harrah's to 69 cents from 64 cents and his 2004 view to $3.14 from $3.10.
Ameristar Casinos Inc., which operates casinos in Midwest riverboat markets, boosted its first-quarter guidance to 57 cents, above the previous 40 cents to 44 cents and the Thomson First Call analyst mean of 45 cents.
The movement caused investors to take notice of the group Wednesday.
Shares of Caesars were recently up 32 cents, or 2.5 percent, at $13.18; MGM Mirage was up $1.03, or 2.4 percent, at $44.57 and Harrah's was up 67 cents, or 1.3 percent, at $52.30.
Mandalay was up 94 cents, or 1.8 percent, at $53.80; Boyd was up 62 cents, or 2.9 percent, at $22.06 and Aztar was up 37 cents, or 1.7 percent, at $22.62.
Station Casinos was up $3.01, or 7.7 percent, at $42.11; and Trump Hotels & Casino was up 52 cents, or 19.8 percent at $3.15; earlier shares reached a new high of $3.64, topping the 52-week high of $2.85 set Jan. 21.
Of the slot-machine makers, IGT was up $2.60, or 6.2 percent, to $44.05; Alliance was up $2.02, or 6.8 percent, at $31.92 and WMS was up 45 cents, or 1.7 percent, at $26.41.
J.P. Morgan has an investment banking relationship with Caesars, MGM Mirage and Mandalay Resort but the analyst wasn't listed as an owner.
Deutsche Bank has an investment banking relationship with Alliance, WMS and IGT but the analyst wasn't listed as an owner of the stocks.
Merrill Lynch has an investment banking relationship with MGM Mirage but the analyst wasn't listed as an owner of the stock.