FANTINI’S FINANCE: Falling Back to Earth

The run-up of gaming stocks enjoyed over the last year is over. Even though the stock market continues to prosper, gaming stocks have taken a hit. What happened?

Spring has been a lousy season for gaming stocks.

They continue to sell off while the S&P 500 and Dow Industrials hit new highs.

Gloom seems to hover over every segment of the industry.

The big American-listed Macau casino operators bounce up—on every tangible evidence of growth—then fall on every rumor or scrap of news that a slow down might be coming.

Regional casinos continue to struggle with low-spending customers and increasing competition and their stocks reflect the grim environment.

New supplier companies are crowding in, and in the process crowding out incumbents, as North America’s one-time Big Three became the Big Five and now are just big.

Even internet gaming, the jazzy new kid on the block whose hype jacked up Caesars and Boyd’s stocks, is falling flat, if not fizzling.

Online revenue in New Jersey actually declined last month, and Delaware Internet revenue is so miniscule that it isn’t even meeting the state minimum for casinos to be able to keep $1 of revenue.

But, as in other times when investors turn darkly negative, they are opening opportunities.



Las Vegas Sands, Melco Crown, MGM Resorts and Wynn have fallen double digits since peaking in early March, with MPEL having the worst of it, down 28 percent.

It is hard to find three better companies with clear strategies, distinct business models and well-defined growth paths than LVS, MPEL and WYNN. And, now, their valuations have come down to levels well within their growth rates.

You now can add MGM to the list as the company is back on its feet and appears to have gotten religion about bringing down its debt and seeking affordable growth.


No group has been hit as hard as slot makers with Bally down 27 percent, Multimedia Games 31 percent, IGT 41 percent and Scientific Games 54 percent.

And, yet, BYI continues to grow earnings with its focus on systems and incorporating SHFL entertainment into its fold.

MGAM is still in the early stages of its national roll out, and its TournEvent and High Rise products are hot.

IGT might have lost its dominance, but it is still the largest slot company with the broadest product line and is now selling at just seven times enterprise value to EBITDA.

SGMS has become a complicated, and perhaps, defocused company. It needs a leader, which it will get as it is generally understood that new and current CEO David Kennedy, at 67, is a placeholder.


Regional operators are one group where it’s hard to find a sunny story.

Boyd and Caesars have fallen 24 percent from their peaks, but that is more a return to reasonable levels after the hype of Internet gaming launching in New Jersey.

Pinnacle has held up the best of all the regional operators, slipping just 12 percent from its top as investors express confidence that it will achieve all the promised benefits of its Ameristar purchase.

The question for PNK is whether the new Belterra Park near Cincinnati can justify its nearly $300 million investment, and whether L’Auberge in Lake Charles is helped or hurt by Golden Nugget opening next door this year.

Positive results could make PNK the bright star in the regional constellation.

Articles by Author: Frank Fantini

Frank Fantini is principal at Fantini Advisors, investors and consultants with a focus on gaming.