The Las Vegas Strip is seeing a protracted downturn in room rates, a leading gaming analyst said today.
Jason Ader, gaming analyst with Bear Stearns, said his weekly room rate surveys indicate that weekend room rates have declined for 10 consecutive weeks, and are down an average of 6.4 percent for both July and August. Weekday room rates have been on the decline for the past three weeks, Ader said.
And tougher times could be ahead, Ader said.
“While year-to-date results have been solid so far, the economy is clearly having an impact on the gaming industry,” Ader wrote in a research note issued today. “We believe the second half of the year could be more difficult for gaming companies, as they begin to feel the full impact of higher utility costs, the ramp-up of Native American gaming in California and the economic showdown, which continues to chip away at operating results.”
The Strip will be hit by a slowdown in free-and-independent travel (FIT), which is related to the economy in general, Ader said. However, Ader said many economic measures showed a growth slowdown starting in September 2000 — so comparisons to last year will begin getting more favorable. Favorable comparisons should come in visitor traffic, gaming Pengeluaran SGP revenues, room rates and California auto traffic, he said.
“We believe the benefits of these easier comparisons could help offset some of the impact from the economic related slowdown in FIT visitation,” Ader said.
In general, Ader is reducing his earnings estimates on gaming companies by 5 to 10 percent . However, he noted that the average S&P; 500 company has shown a year-over-year earnings decline of 18 percent, and as a result, he’s still recommending the gaming sector.
“While we remain somewhat cautious on the overall outlook for the gaming industry, given the uncertain outlook for the economy, higher utility costs, as well as the competitive conditions in some markets (Tunica, Miss., Northern Nevada, Shreveport, La.), we believe that gaming cash flows remain relatively stable, especially in comparison to other industries,” Ader said. “While we have seen some softening of revenue growth in certain markets, and increasing competition for customers, we have not yet seen any widespread deterioration of fundamentals in this industry.
“We believe that the relative stability of earnings in the gaming industry, especially in comparison to other industries (i.e. technology), continues to make gaming stocks an attractive investment, a more defensive sector for investment.”
Results for large Strip gaming operators were mixed in the second quarter. MGM MIRAGE, for example, showed a dramatic increase in earnings for the quarter ending June 30. The company beat analyst expectations for the quarter, posting total cash flow of $324.8 million, up 63 percent. Growth was particularly strong at the Bellagio and Mirage resorts in Las Vegas, and offset weaker quarters at the New York-New York in Las Vegas, the MGM Grand Detroit, the Beau Rivage in Mississippi and the company’s three Primm casinos.
But Park Place Entertainment Corp. missed analyst expectations for the quarter. The company’s $310 million in cash flow was down 7.5 percent from the year-ago period.
The company said it was hurt by a slow quarter at the Las Vegas Hilton, as well as declines at Park Place properties in Northern Nevada and Tunica, Miss. Cash flow improved marginally at Caesars Palace and Paris Las Vegas/ Bally’s Las Vegas, but $1 million cash flow increases at each property were offset entirely by a $2 million cash flow decline at the Flamingo Las Vegas.
