Can a Focus on Margins Save Vegas?

• By the tickerspy.com Staff
• On 12:26 pm EDT, Monday October 5, 2009

According to The Wall Street Journal, the expansion spree that powered Vegas for the last six years could be checked for the next decade.

The post-recession casino business has changed quite a bit according to MGM Mirage (NYSE: MGM - News) CEO Jim Murren. "It doesn't take a $3 billion building" to attract customers Murren told The Wall Street Journal - big words from an executive who oversaw the latter stages of MGM's $8.5 billion City Center project, which is set to open later this year.

According to the report, the new model for casinos stresses bolstered margins and customer loyalty. While that may be music to the ears of investors, the change might not be that easy. Susquehanna Financial Group analyst Robert LaFleur, who put a paltry $4 price target on MGM in mid-September, told The Journal, "It's the theme-park dilemma. You've got to build a new roller coaster. Everyone likes to go but you need a reason to keep them going back."

Over the last month, the Casino Stocks Index traded higher by as much as 13% only to fall back to where it started -- currently outperforming the S&P 500 only fractionally for the period.

MGM is among the winners over the last month, as are fellow casino giants Las Vegas Sands (NYSE: LVS - News) and Wynn Resorts (NASDAQ: WYNN - News). All three have returned more than 20% for the period, even after forfeiting a portion of their gains over the last week.

Full House Resorts (AMEX: FLL - News) and Empire Resorts (NASDAQ: NYNY - News) are the sector's worst performers in the last five sessions, both down by more than -10%. Meanwhile, even Isle of Capri Casinos (NASDAQ: ISLE - News) and Ameristar Casinos (NADSAQ: ASCA), the sector's top performers over the last week, haven't broken into positive territory for the period.

As casino operators attempt to manage their way through the sector's troubles, investors can track trends and generate investment ideas with the Casino Stocks Index.

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