Is now the time for investors to bet on gaming and casino stocks?
Analysts and money managers have a lukewarm outlook for these industries in the near term, and their lack of enthusiasm is only partly due to the devastation wrought by Hurricane Katrina, which destroyed or badly damaged a number of gambling properties in the Gulf of Mexico.
Looking out a few years, however, observers think the businesses have the potential to thrive, even in parts of Louisiana and Mississippi that were ravaged by the storm.
Standard & Poor’s had a “neutral” opinion of the gaming industry before Katrina hit, and that has not changed. These stocks had appeared and still seem to be “adequately priced,” said Thomas Graves, an Standard & Poor’s analyst who follows casino and lodging companies.
Joseph Fath, a gaming and lodging analyst with T.Rowe Price Group (TROW), a mutual fund and investment management firm, said he would view casino stocks with caution over the next 12 months. Fath thinks financial results for companies with operations in the Gulf States could become “very messy” over the next couple of quarters as they make “pro forma adjustments” tied to storm damage.
Still, gaming and casino companies with little or no exposure to Katrina should do well in the long run if consumers continue spending, Fath said. “When you look at the fundamental data and break it down, there really hasn’t been an impact on demand yet,” he said.
Industry observers said that, at most, 5% of the gaming and casino industries’ revenues and profits are generated from facilities in the Gulf States, so Katrina’s effect should not be significant.
Two of the biggest players in the gaming and casino businesses, Harrah`s Entertainment (HET) and MGM Mirage (MGM), have a handful of properties in areas affected by the hurricane, but the majority of their facilities are located outside the region. Stocks of both companies are currently ranked 3 Stars by Standard & Poor’s.