Casino Stock Picks From Award Winning Analysts

• On 3:22 pm EDT, Tuesday September 22, 2009

67 WALL STREET, New York - September 22, 2009 - The Wall Street Transcript has recently published its Casinos, Gambling and Gaming Technology Report report offering a timely review of the sector to serious investors and industry executives. This 42 page feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Las Vegas Room Base Increase - Macau Gaming Economics - Distressed Balance Sheets - Casinos Going Dark - Lodging Industry REVPAR Trends - Near Term Debt Maturities - Impact of Riverboat Gaming - Trends in the Gaming Sector - Decline of Atlantic City - New Gaming Technology Developments - Stock Winners and Losers

Companies include: MGM Mirage (MGM); Wynn (WYNN); Las Vegas Sands (LVS); International Game Technology (IGT); Bally Technologies (BYI); WMS Industries (WMS); Shuffle Master (SHFL); Penn National (PENN); Ameristar (ASCA) Marriot International (MAR); Starwood (HOT); Boyd Gaming (BYD); Nevada Gold (UWN); ILX Resorts (ILX); Isle of Capri Casinos (ISLE); Youbet.com (UBET).

In the following brief excerpt from just one of the 10 interviews in the 42 page report, award winning equity analysts discuss the outlook for the sector and for investors.

JOE GREFF is a Managing Director in the Equity Research Department at J.P. Morgan. He joined the firm through the June 2008 merger with Bear Stearns. He has been an Institutional Investor-ranked analyst for the past four years covering the Gaming & Lodging Sector, ranking No. 1 for the past three years. He also ranked No. 1 in the recent Greenwich Associates U.S. Equity Analysts Polls for Hotels/Resorts, Gaming & Leisure Facilities. He has been recognized for his stock picking in The Wall Street Journal's Best on the Street 2007, 2006, and 2004 Surveys. Prior to joining Bear Stearns, he worked at Fulcrum Global Partners, ABN AMRO and Prudential Securities. He received an MBA in Finance from New York University and a BA in Economics and Mathematics from Muhlenberg College.

ANDREW S. ZARNETT, Managing Director, currently serves as Deutsche Bank's Gaming, Lodging and Leisure High Yield Debt Analyst as well as Co-Head of High Yield Research. Previously, from 1996 - 1999, he was the Senior Gaming Equity Analyst, Gaming, Lodging and Leisure, at Ladenburg Thalmann & Co., Inc., where he also served as a member of the Board of Directors. Before joining Ladenburg Thalmann, he was the Assistant to the Chairman, Furman Selz, LLC. He is frequently quoted in both the trade and national press, including the Wall Street Journal, New York Times, Los Angeles Times, Las Vegas Sun and the Las Vegas Review Journal. In 1985, he received a BA degree in Economics from York University. In 1988, he received his MBA in Finance from Babson College. Further, for many years, he was named to the Institutional Investor All Star Team. And in 2005, he was awarded the #1 Institutional Investor All Star Team.

TWST: Joe let's start with you. With all the doom and gloom out there, what I really want to know is, are there any bright spots in the gaming industry?

Mr. Greff: One can look at gaming in three buckets. The Las Vegas Strip-centric operators and the Macau-centric operators are one bucket such as Las Vegas Sands (LVS), Wynn Resorts (WYNN), and MGM Mirage (MGM). You can look at the regional riverboat gaming operators as another bucket. And then you can look at the gaming equipment companies like International Game Technology (IGT), Bally Technologies (BYI), WMS Industries (WMS) and Shuffle Master (SHFL) as the third bucket. I would then further look at the operating fundamentals and relative investor expectations for these different buckets. So, to answer your question directly, I would say the bright spots for the gaming industry as investment opportunities are that investor expectations generally are very low, particularly when it comes to the Las Vegas Strip. The Las Vegas Strip is full of challenges, no question about it. The Las Vegas Strip from 2003 to 2007 saw approximately 50 percent increases in room rates. And the room rates in Las Vegas are really what's incredibly soft right now, and that's a big chunk of the profitability. And obviously, in the first few months of this year, the group business has really hurt, and all of the operators in Las Vegas have significantly cut room rates to generate 80-to-90 percent occupancies and stimulate visitation. That has brought mixed success so far this year. The regional gaming operators had really strong results, and I think you are starting to see that slow down a bit here in the second quarter. But those markets are relatively healthy depending on the market you look at in terms of competitive supply, which is a major issue on the Las Vegas Strip that will take multiple years to absorb. Some of the anticipated supply is going to take some time to open up, whether that's Fountainebleau or Cosmopolitan. But the Strip right now has a lot of challenges. It has no pricing power whatsoever.

Retail is a mess on the Las Vegas Strip. It will take a couple of years for it to get back to some sort of normalized revenue level. But I think whether it's gaming or even lodging for that matter, if you look at spend per volume or spend per occupied room or some sort of measure of consumer spend, I think you got to throw away the 2004-2007 time frame and kind of go back to 2003, 2002, as some sort of normalized level. And then from that perspective, you have to look at rationalizing the expense structure. And that will take time to do. CityCenter should add north of 6,000 hotel rooms, if you count the residential components that likely don't get sold as legitimate hotel inventory. So I guess it's a long way of answering your question. There are challenges even on the equipment side, with a very sluggish domestic replacement market. And you are seeing new casino build cycle ramp down. I think with some sort of economic recovery, you will start to see slot sales stabilize and start to grow. But I think you are looking at very low growth rates in the next few years. And I will be on record saying this, that in the next couple of years, I think you will see at least one, perhaps two, reasonably competitive properties on Las Vegas Strip go dark, where you take out transient hotel capacity. And even though a property could be EBITDA positive, you can close the property, take out fixed expenses, and if you're a company that owns multiple properties on the Las Vegas Strip, you can shift some of those revenues to your existing properties with minimal operating expenses. That would be net-net EBITDA positive. And that's certainly a better alternative than selling for a depressed evaluation multiple of trailing cash flow or expected cash flow of a property that could close where the net leverage impact would be de minimus.

TWST: Do you care to name the properties that you think might close?

Mr. Greff: I prefer not to.

TWST: Andrew, do you agree with what he said?

Mr. Zarnett: I do agree. The gaming industry has experienced its worst recession since I've been covering it. It's being felt most in Las Vegas and Atlantic City, as both of those markets have experienced or will experience large increases in supply. Atlantic City is being impacted by regional supply and Las Vegas has direct supply. The bright spots happened to be in the capital markets, where the bond market and the bank loan market have recovered somewhat over the course of the last three or four months. And at this point, with nominal pullback, they have stayed very firm and allowed companies like MGM to float new issues both on the equity and the debt side. The same holds true for Harrah's, where they were able to take a piece of their first lien debt and improve their bank covenants. And Ameristar, where they were able to term out their bank facility into bonds, not the whole thing, but approximately half of their total bank facility. And that meant a lot for those various companies, to be able to move through this trough and hopefully to be able to see some sort of recovery in their fundamental performance, maybe not next year, but in 2011. And still, other companies have executed amendments for bank loan extensions, which we call "amend and extend." They've used amendments to push out or to garner covenant relief, and they have been able to extend out, in some cases, their maturities. A good example there would be Wynn Las Vegas. So that's the bright spot. The capital markets have been responsive. They have allowed companies to get a little bit of oxygen so that they can make it through the toughest part of the recession. We'll see. There's is more to be done in the case of some companies, and we will see how that plays out.

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 42 page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .

The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.

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