Monday, September 21, 2009

Is There Life After The Great Recession?

Apparently, there may be for the casinos. Despite weak earnings (profit), uncertainty over when Nevada's economy will turn around, and a lack of optimism for strong tourism numbers in 2010, casino stocks are soaring again.


“There’s nothing going on fundamentally, in the near term, to get enthusiastic about unless you think the economy has turned and we’ll see more domestic and international travel (to Las Vegas), and I’m somewhat skeptical on all those,” said Dennis Forst, a stock analyst with KeyBanc Capital Markets.

So what’s to love?

Some of the rebound is tied to the fact that MGM Mirage and Las Vegas Sands — among the most leveraged of the casino companies — have escaped bankruptcy in the near term. Like many American companies, they have injected new equity and borrowed more, giving them more time to ride out the economic storm. The capital markets have opened somewhat since the market crash, giving companies the ability to raise needed cash.

“These companies’ balance sheets are in much better shape,” Forst said.

So basically, the casinos are being "rewarded" for not going bankrupt. Wow. I wish investors would give us money for pulling something like that off! (LOL.)

Oh yes, and things may be looking up for Wynn and LV Sands in China.

Much of the rise in Wynn and Sands stocks, which have increased the most in recent months, is driven by news from Macau, the Chinese enclave halfway around the world from Las Vegas where these companies generate most of their earnings. Earnings have improved there, in part because of improved high roller business, even though the Chinese government has restricted travel to Macau from its chief feeder market, mainland China. Both companies’ shares also have traded up on news that they will raise money in Hong Kong-based initial public offerings of their Macau assets.

So are we seeing a turnaround with the casinos? I hope so, but let's not get our hopes too high just yet. Again, even the most optimistic gaming analysts aren't expecting a return to boom-years levels of tourist spending on The Strip this year or even next year. And even if MGM Mirage's CityCenter can pull off a successful opening, they will still have to cut room rates and condo prices to lure those tourists into the "condotel". Oh yes, and CityCenter's opening may force the competition to keep their room rates low, further depressing hotel revenue for the casinos.

Still, there may be reason to hope. The economy is slowly but surely turning around. Tourists are now coming back, even if they're not spending as much as they used to. The pain isn't over yet, but hopefully the light at the ned of the tunnel isn't a speeding train and the casinos will learn how to adapt to the "new reality" of tourists actually demanding more bang for their buck.

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