Slow Holiday in Vegas Leaves Investors Guessing

The New Year’s Eve party in Las Vegas ended up much more subdued than expected for the city’s gaming companies--and a downright sobering event for their stockholders.

Visitation to the Strip’s big casino-hotels in late December fell far short of expectations, a situation that Wall Street had begun to sense early. Stock prices for the major operators began sliding in November and are still under pressure.

“New Year’s was a flop,” said Dennis Forst, an analyst with McDonald Investments in Los Angeles. “It was a very weak time when it’s traditionally the busiest time of year for the companies.”

That was starkly evident Wednesday when Mandalay Resort Group, whose stable of properties includes the new Mandalay Bay resort in Las Vegas, announced that the lousy New Year’s weekend results would cause its fourth-quarter profit to trail year-earlier levels.

In response, Mandalay Resort’s stock plummeted $3.94, or 20%, to close at $15.31 a share Thursday, in heavy trading on the New York Stock Exchange. Mandalay also operates the Circus Circus and Luxor resorts on the Strip.

That raised concern that other big operators such as Mirage Resorts Inc., MGM Grand Inc., Park Place Entertainment Corp. and Harrah’s Entertainment Inc. might also post disappointing fourth-quarter results.

But with New Year’s Eve over, investors are now looking ahead to the rest of 2000--and analysts are sharply divided over whether the rally in gaming stocks that occurred a year ago will repeat itself.

After enduring a severe, two-year slump, casino-hotel stocks rebounded smartly through most of 1999. A key reason: Several new, opulent properties--including the 3,700-room Mandalay Bay and the 6,000-room Venetian--opened for business. Mirage’s elaborate Bellagio had just opened as well.

“All the new properties on the Strip really stimulated the market and drew lots of people to Vegas,” said Todd Jordan, an analyst at investment firm Raymond James & Associates in New York.

The stocks responded in kind. The Chicago Board Options Exchange index of 11 leading shares jumped 40% last year, compared with the 19.5% gain in the bellwether Standard & Poor’s 500 index.

But then the speculation set in that the New Year’s weekend wasn’t going to be the party Las Vegas had expected. Publicity began surfacing that many people were staying home for New Year’s, that others feared traveling because of potential Y2K problems and, perhaps most important, that Las Vegas resorts were among those destinations that dramatically raised prices to benefit from the 2000 celebration.

“Vegas overpriced itself, and people didn’t travel much,” Forst said. “It was a very weak time for Vegas when it should have been its busiest time of year.”

Jordan said it became clear that “over the past few weeks, the [reserved] room rates came down dramatically.” That’s why he was neutral on the stocks of Mandalay Resort and some other gaming companies even before Mandalay Resort’s announcement, and he’s not changing his stance.

“If you look at past expansions” of properties in Vegas, there’s typically a retreat [in visitation] after the initial boom, from 12 to 18 months,” he said. “If that happens in 2000--especially given the comparisons to the strong first quarter of a year ago--I think the stocks are going to have a tough time going up.”

Jason Ader, an analyst at Bear, Stearns & Co. in New York, also is neutral on several of the big operators, saying “Vegas has a tough act to follow this year.” Specifically, the companies will struggle to post quarterly earnings growth on top of their robust 1999 levels, he said.

But Forst and other analysts disagree, and are touting the stocks. Despite the New Year’s stumble, “it has nothing to do with what’s going to happen in the year 2000; it was an isolated event,” Forst said.

The economy and gaming demand remain relatively strong, he said. Also, “with no new [building] capacity coming on in 2000, that enables the companies to focus on operating what they have and generating free cash flow to reduce the debt they added for expansion and acquisitions.”

Conversely, Ader said “casino companies thrive on visitation that’s stimulated when new properties come on line. The risk now is that leisure consumers who have gone to Vegas to see the new properties will now go see other vacation spots around the country.”

The mixed expectations showed in trading of other major gaming stocks Thursday.

Mirage Resorts gained 75 cents Thursday, to $15.06 a share, and MGM Grand rose $1.69 to $47.75 a share. But Harrah’s slipped 9 cents, to $23.06, and Park Place fell 25 cents to $11.13 a share. All trade on the NYSE.

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Hard-Luck Stocks

Stock prices for the major Las Vegas hotel-casino operators have tumbled lately amid a lousy New Years Eve weekend and a divided outlook for the stocks in 2000. Net change in a major casino stock index and the S&P; 500 each week since Nov. 1: