Signup for our free newsletter:

Casino Stocks

Written By Brian Hicks

Posted February 17, 2009

Just last week, we brought your attention to 2 must-own online gaming stocks. 

And while our bullish opinion of online gaming hasn’t changed, our bearishness on offline gambling stocks has only grown stronger. 

In fact, we’re about to close out on some impressive gains on Wynn Resort put options in my Options Trading Pit service, as the underlying stock dipped from $31 to less than $25.50.

And yet there’s still time for us to bag big gains on casino stocks such as Wynn, Las Vegas Sands, and MGM… just to name a few.

You see, the casino business has been tough on everyone…

…That is, if you’re an owner, an employee, and / or a shareholder. 

After all, it’s not as if casino downfalls are a big surprise to anyone:  

  • Las Vegas Sands fell from a high of $144.46 to less than $3.40.
  • Wynn Resorts fell from a high of $164 to less than $26.
  • MGM Mirage has fallen from a high of $99.75 to less than $5.20.
  • Melco Crown Entertainment fell from $22.20 to less than $2.50.
  • Trump Entertainment fell from $20+ to less than a quarter.
  • And Boyd Gaming has been trampled, tumbling from $50+ to less than $5.
Worse, between a Susquehanna downgrade and MGM Mirage news, Wynn resorts has fallen about $5 a share. And we believe there’s further downside as we head into earnings.

Vegas is being hit hard by declining discretionary spending and the housing slowdown. So it comes as no shock that MGM Mirage just had its price target cut from $19 from $30, as MGM gets about 85% of its "property-level earnings" before EBITDA from Vegas.

Says the analyst:

"Each monthly (Las Vegas) revenue report is increasingly weak, and operators and investors have little, if any, visibility to when the situation might take a turn for the better."

He also cut Q4 EPS estimates for 15 cents from 30 cents, cut his 2009 forecast to 51 cents from $1.03, and slashed the 2010 estimate to 74 cents from $1.25.

Things aren’t looking pretty for the future of Wynn either, as KeyBanc downgraded the casino stock to Underweight, noting that (for Wynn to implement cost cutting measures), this is the first time "we can ever remember this management team taking such drastic measures."

Even Las Vegas Sands just missed earnings by 30 cents a share… 30 cents.  That’s huge.  And it’s likely to face continued pressure on anticipated weakness in Last Vegas and Macau.                     

How Casinos are Faring in the Recession

Again, it’s no shocker to see Vegas and Atlantic City fall.  Who has discretionary income to spend in this economy… with these job losses piling up? 

On the Vegas Strip, for example, the take fell 23% to $474 million in December, according to the Nevada Gaming Control Board.  Table game revenue fell 30%, as slot machine revenue fell 14%.  Total gaming volume was off 15%.

And for Q4, gambling revenue on the Vegas Strip fell 22%, as full year numbers fell 10%.  Worse, according to the Las Vegas Convention and Visitors Authority, visitation to Vegas for December was down about 11% to 2.7 million. 

As for Atlantic City, gambling revenue fell 9% in January, according to the New Jersey Casino Control Commission.  Atlantic City slot wins fell 10%, as table wins saw a 9% deceline.

Trump stepping down, or at least in name

Donald Trump and his daughter’s departure from the board of debt-heavy Trump Entertainment comes ahead of Monday’s deadline to make a $53 million bond payment that was due back on December 1, 2008.  

Says Trump, according to, "I have nothing to do with it.  I’m not in it.  I’m not on the board."  And he has no idea if there will be a bankruptcy filing.  But it’s looking as if bankruptcy is in the cards as early as next week, per the bondholders. 

Here’s more from the article:

Trump Quits Trump Entertainment as Debt Payment Deadline Looms

Trump said the fate of Atlantic City’s Tropicana Casino Hotel and the under-construction Revel Entertainment LLC project factored into his decision to leave Trump Entertainment.

"It’s a disaster and I see what’s happened with so many others, and I don’t want to be a part of it," Trump said.

Tropicana Entertainment LLC was pushed into bankruptcy after being stripped of its New Jersey gambling license. State officials said in December 2007 that the Tropicana Casino Hotel’s service and cleanliness had declined and the property wasn’t being run according to state regulations.

Revel Entertainment last month suspended interior work, unable to secure needed financing to finish construction at the 20-acre boardwalk site. Revel had been scheduled to open mid- 2010.

Trump is "not thrilled" the company may continue to use his name, he said.

Trump Entertainment’s three casinos have been through bankruptcy twice. Holders of most of company’s $1.25 billion in notes and Beal Bank Nevada, which is owed $490 million, have agreed not to exercise default rights for interest or principal payments until 9 a.m. New York time on Feb. 17.

Why Our Opinion on Online Gaming Won’t Change

As we said last week:

The Unlawful Internet Gambling Enforcement Act (UIGEA) was first put in place in late 2006. However, if it’s reversed, as Barney Frank is trying to do, the United States could reap a $17.6 billion profit over the next 10 years, according to a PricewaterhouseCoopers study.

As the 111th Congress begins work under a new administration, Frank has already expressed interest in reintroducing legislation that would counter the UIGEA, reportedly telling the Financial Times that he wants to "reintroduce a bill in the next few weeks to establish a licensing and regulatory framework for online gambling operators." It’ll be similar to the Internet Gambling Regulation and Enforcement Act of 2007 (IGREA), which was introduced by Frank, attracted some support, but never made it to the House for a vote.

And, according to Poker News, Franks expressed belief to the Financial Times that the "chances for the new legislation to become law to be much better than had been the case for the IGREA, both because of the change in administration as well as ‘because public opinion [is] demanding the right to gamble online.’"

But that’s not the only catalyst…

Japan, which has always been strict on gambling, is now considering bringing in controlled and regulating online gambling as early as 2010. 

Considering that Japan is Asia’s richest nation with the highest GDP, and considering a population size of 128 million, Japan, alone, could significantly boost the online gaming market.  This could be huge.

Do yourself a favor after reading this.  Dump your long positions (if you own them)… and buy put options on Las Vegas and Atlantic City casino stocks.  But load up on the online gaming stocks, which could soar in the next few weeks thanks to Barney Franks’ latest gambling plan.  Here’s how to get started.

Good Investing,.

Ian L. Cooper