UPDATE: Casino Shares Pare Some Recent Gains On Rating Downgrade
07 Abril 2009 - 4:51PM
Dow Jones News
Casino operators gave back some of their recent gains Tuesday as
one analyst called the jump unjustified and recommended investors
sell their shares of MGM Mirage (MGM).
Casino shares have been rallying in recent days following news
MGM may receive a capital infusion or sell some of its properties
to raise cash to pay down debt and help fund City Center, its Las
Vegas development that still needs billions in financing.
But analysts warned that even if MGM took those actions, they
would largely be a short-term fix.
A representative from MGM wasn't immediately available to
comment.
Early Tuesday, Janney Montgomery Scott analyst Brian McGill
downgraded his stock-investment rating of MGM to sell from neutral,
saying that he believes the company is in a challenging position
and that the increase in share price isn't justified.
"We believe asset sales will be difficult for MGM, as we expect
the banks to block fire-sale prices and we do not see many
interested buyers with access to cash or credit," McGill wrote,
adding that the company has nearly $10 billion in debt coming due
by the end of 2011.
In recent trading, MGM shares slid 19% to $4.48. Shares traded
as high as $61.97 a year ago, but slipped as low as $1.81 last
month.
Boyd Gaming Corp. (BYD), meanwhile, declined 12.1% to $4.94,
while Las Vegas Sands Corp. (LVS) fell 22.5% to $3.84. Wynn Resorts
Ltd. (WYNN) lost 14.17% to $26.78.
Such declines also came amid the Nevada Gaming Control Board's
report which noted that state gaming revenues declined 18.12% in
February compared to the same period last year. Meanwhile, revenues
from the Las Vegas Strip declined 23.45% in February compared to
the year ago period.
Susquehanna analyst Robert LaFleur told Dow Jones Newswires that
while MGM might be able to avoid bankruptcy, it still will have
problems related to the slowdown in Las Vegas.
"If you sell assets, you raise cash, which solves near-term
liquidity issues," LaFleur said. "However, that doesn't improve the
balance sheet over the long run."
Jefferies & Co. analyst Lawrence A. Klatzkin said MGM's
stock movement Tuesday isn't a major give back.
"Given how much MGM was up in the last week and that it was
lowered to sell, I would be expecting a much bigger percentage hit
than these numbers," Klatzkin told Dow Jones Newswires.
He added that the shares are avoiding large drops Tuesday
because investors have hope MGM will be able to raise the funds
needed and avoid bankruptcy.
"MGM hasn't gotten out of its hole," Klatzkin said, adding MGM
hasn't announced any definitive plans yet, but if it does, the
stock should rebound.
"If it can't [solve its problems], it will likely declare
bankruptcy, and the stock will be below a dollar," Klatzkin said.
"With the talks, people have hope it won't have to declare
bankruptcy."
-By Shara Tibken, Dow Jones Newswires; 201-938-2168;
shara.tibken@dowjones.com
(A.D. Pruitt and Tamara Audi contributed to this report.)