NEW YORK (TheStreet) -- The pressure is on for casino stocks ahead of fourth quarter earnings reports due out this week.
As Macau gaming revenue hit record levels in 2010 and the Las Vegas economy begins to show signs of recovery, Wall Street won't be satisfied with so-so numbers.
Casino stocks, for the most part, also witnessed significant jumps last year. In order to keep up this momentum, casinos must prove a turnaround is truly in place.
Here's a look at how casino stocks are expected to stack in the fourth quarter....
Las Vegas Sands
Singapore will be in focus when
Las Vegas Sands
reports its fourth-quarter earnings on Thursday.
Las Vegas Sands, which generates over 75% of its earnings from outside the U.S., has relied on the success of Macau. and then Singapore. to sustain profit amid the recession.
Last week the CEO of Marina Bay Sands, its Singapore property, resigned unexpectedly after just a year and a half on the job. Tom Arasi will leave the company on Feb. 18, raising a red flag among investors.
Shares of Las Vegas Sands have fallen nearly 10% since early January, but J.P. Morgan analyst Joseph Greff still expects solid results out of Marina Bay Sands.
"We don't view Mr. Arasi's departure as having any negative read-through for fourth-quarter Singapore results. If the departure was results-related, he likely wouldn't be sticking around through next week," Greff wrote in a note following Arasi's resignation.
There has also been some concern regarding Las Vegas Sands' market share in Macau, as its foothold in the region came in slightly below the company's average in December.
At the end of 2010, Macau officials failed to approve Las Vegas Sands' land concession for what has been known as Sites 7 and 8 on the Cotai Strip. But, of course, the company still has sites 3, 5 and 6 on the Cotai Strip, which will surely carry momentum over the next several years, with analysts estimating the casino operator can add 6,000 rooms in Macau in the next two to three years.
Analysts are calling for a profit of 39 cents a share on revenue of $2.07 billion.
Looking ahead, Las Vegas Sands is poised to benefit from the upcoming Chinese New Year, which will kick off at the end of the week.
is expected to report some of the best numbers coming out of Macau.
The casino operator has been able to hold onto the a mid-to-high teen market share in the Chinese enclave, surpassing rival Las Vegas Sands in December.
But analysts are concerned that near-term earnings momentum and enthusiasm will be partially offset by the reality of competition in Macau, arriving with the opening of Galaxy this year and the phased launch of Sites 5 & 6 by Las Vegas Sands.
One potential catalyst for Wynn could be a land plot grant from the Macau government, which is expected to come in the first half of the year. But Sterne Agee analyst David Bain warns that gusto for the actual land grant could also be short lived given Wynn's equity multiple.
"We continue to like Wynn on dips or until other potential catalysts emerge," Bain wrote in a note on Jan. 4.
Long-term, Wynn may look to Massachusetts for a destination facility and Japan could also present possible expansion opportunities.
For the fourth quarter, analysts are forecasting a profit of 63 cents a share on revenue of $1.12 billion.
took one of the biggest hits in 2010, as the Las Vegas Strip was decimated due to the pullback in consumer and business spending. And Wall Street expects the losses to continue.
But MGM's CEO Jim Murren told CNBC earlier in the month that the company's hotel room revenue, convention business and gaming revenue, are "starting to come back." He also noted that convention business could surge more than 30% in the first quarter.
Still, one potential headwind facing MGM in Las Vegas is the opening of the Cosmopolitan in December. Currently, it is hard to decipher how much of an impact the new resort-casino will have on MGM and other properties on the strip, but Bain estimates that Cosmo increases luxury room capacity by about 9%.
MGM's $8.5 billion CityCenter complex, which lost $1.27 billion during the first three quarters of 2010, stands to feel the biggest impact from the opening of Cosmo.
Earlier in the month, MGM issued $1.5 billion in notes for its CityCenter property in an effort to raise money to reduce its debt. The company plans to use the proceeds, plus $77 million in equity contributions from its owners, to reduce the balance on its senior secured credit facilities to $500 million from $1.85 billion, to create an interest escrow for first lien debt, and to pay fees and expenses.
MGM's joint venture in Macau is expected to give the biggest boost in the fourth quarter. MGM is currently in the process of filing for an initial public offering of its Macau assets on the Hong Kong stock exchange.
For the fourth quarter, analysts are predicting a loss of 22 cents a share on revenue of $1.49 billion.
Penn National Gaming
Penn National Gaming
is poised to be one of the biggest winners among the regional casino players. But at least one analyst suggests heeding caution heading into fourth quarter results.
KeyBanc Capital Markets analyst Dennis Forst downgraded Penn to hold from buy on Monday, as shares have appreciated 57% over the past seven months. The stock is now trading within 8% of Forst's price target and he believes tumultuous weather in the Eastern seaboard raises some concerns for first-quarter 2011 results.
While Forst expects Penn's fourth-quarter earnings will be upbeat, he does not share that optimism for the near-term. "In spite of a reasonable valuation and significant growth opportunities, we prefer to take a wait-and-see approach to the shares," he wrote in a note. "We are eager to get clarifications surrounding Penn's Ohio projects and joint ventures in Texas and Maryland. We think at this time the clarity of that pipeline along with share appreciations combine to dictate a more cautious posture toward the stock at the present time."
Penn's guidance could also cause analysts and investors to lower expectations for the first quarter and full-year results, Forst continued.
In its third quarter, Penn benefited from its launch of table games in Pennsylvania and West Virginia, leading profit to more than double from the year prior. Penn also opened its Maryland slot casino at the end of the year, which should drive positive EBITDA growth past the second quarter of 2011.
During the fourth quarter, Penn announced it is making its first foray into Las Vegas with the purchase of M Resort for $230.5 million. The high-end casino cost $1 billion to build, and Anthony Marnell III spent an additional $240 million for the land. Penn now gets a relatively brand new casino for a fraction of the total cost of the project, and less than even the price of the land itself.
On Monday, Penn submitted the $10.25 billion winning bid for bankrupt Rosecraft Raceway. The company intends to add slot machines at the Maryland harness track and plans to resume racing this year.
Penn National said in a statement the purchase of Rosecroft is part of its strategy to boost its "presence in key markets with assets that can benefit from the placement of gaming devices."
Melco Crown Entertainment
Melco Crown Entertainment
has benefited from being the only pure-play on Macau gaming, and is expected to be one of the biggest winners of 2011.
"We continue to believe Melco Crown Entertainment ... is undervalued given its positioning on the Island, Macau market growth and continued improvements at its flagship City of Dreams property," Bain wrote in a note last week.
One tailwind for Melco is its upgrade to its flagship City of Dreams property. The company plans on rolling out 18 additional tables. The company plans on rolling out 18 additional VIP tables by the first quarter of 2011 and has land to open up additional hotel capacity. The VIP arena is expected to be the biggest area of growth in Macau in 2011, so the timing of these new tables perfectly coincides.
Melco is scheduled to release its fourth quarter results on Wednesday, and Wall Street is looking for a profit of 1 cent a share on revenue of $725 million.
is expected to benefit in the fourth quarter from better-than-expected gross gaming revenue at its three Louisiana facilities, as well as its Belterra Casino Resort in Indiana. This should partially offset expectations of lower St. Louis operations.
"We believe regional gaming spend trends will continue to get better throughout 2011, growing off the recent low growth results seen over the last several months," J.P. Morgan analyst Joseph Greff wrote in a note earlier in the month.
Pinnacle's new chief executive, Anthony Sanfilippo, has spent the past several months working to drive increased operating efficiencies, allocate capital prudently and sell non-core businesses and assets, Greff noted.
Following fourth-quarter results, which are due out on Friday, Greff foresees positive analyst revisions to forecasts. "We believe estimates are too low, especially given the recent signs of revenue lift in Pinnacle's regional market, and with management's margin focus and initiatives in 2011, EBITDA should grow nicely, in our view," he continued.
Wall Street is looking for a fourth-quarter loss of 4 cents a share on revenue of $274.9 million.
The Las Vegas locals and Atlantic City markets have the longest road to recovery, making
one of the most challenged stocks in the sector long-term.
In Atlantic City, where Boyd owns a 50% stake in the Borgata, gambling revenue fell for the fourth consecutive year in 2010. The New Jersey Boardwalk had been under pressure even before the recession began, as nearby regions are expanding their gaming presence.
Both West Virginia and Pennsylvania added table games to casinos in the second half of the year and new properties opened in Philadelphia and Maryland. In 2011, Atlantic City will also have to contend with additional growth in Pennsylvania and the pending opening of the Aqueduct in New York City.
Given this, last year Boyd decided not to exercise its right to match a $250 million offer MGM received for its 50% stake in the Borgata. MGM decided to divest its joint venture with Boyd after the Atlantic City Gaming Commission criticized its relationship with Pansy Ho in Macau, whose family has allegedly been tied to organized crime in China.
In the Las Vegas locals market, where Boyd generates about 44% of its EBITDA, trends are improving, but not as quickly or steadily as analysts would have hoped.
In its third quarter, Boyd disappointed Wall Street, with adjusted earnings coming in at 2 cents a share, shy of consensus estimates of 5 cents. Revenue dropped 4% to $595.4 million.
For the fourth quarter, consensus estimates are for a loss of 5 cents a share on revenue of $552.6 million.
Isle of Capri Casinos
Isle of Capri Casinos
saw its stock take a hit earlier in the month after it announced an offering priced below expectations.
The casino operator offered 5.3 million shares priced at $10.25 each, to total net proceeds of about $54.3 million. But the offering was about 16% dilutive to Isle's base of about 33 million shares.
Nonetheless, Forst believes this is offset by the company lowering its debt by about $50 million. This stock is for patient investors, as the offering will give Isle some financial flexibility.
"Given the planned development in Cape Girardeau and the potential opportunity in Pennsylvania, we believe the capital-raise efforts are prudent at this time," Wells Fargo analyst Carlo Santarelli wrote in a note at the time of the offering.
Separately, Isle of Capri also announced the appointment of Virginia McDowell as its new chief executive, replacing James Perry, who became executive chairman. McDowell was previously president and chief operating officer at the company.
Isle of Capri has several potential near-term catalysts and some optimistic macro-economic trends in its favor, but analysts say these positives are already factored into the share price.
In December, the casino operator was awarded the 13th and final license in Missouri. Isle plans to spend about $125 million on a property in Cape Girardeau that will house about 1,000 slot machines and 28 table games.
Isle is also one of the four groups vying for the final Category III resort license in Southwestern Pennsylvania that would allow for 600 slots and 50 table games to be added to an existing hotel property.
In its second quarter, Isle lost $1 million, or 3 cents a share, due to higher interest expenses. That compares with a profit of $1.6 million, or 5 cents, a year earlier. Revenue edged up slightly to $246.7 million from $246.1 million. Interest expense climbed to $23.4 million from $17.9 million due mostly to higher borrowing costs and increased borrowings related to its acquisition of the Rainbow Casino in Vicksburg, Miss.
Analysts are looking for a loss of 11 cents a share on revenue of $237.7 million when the company reports its results on Feb. 21.
is expected to follow on the path of its peers, as stronger-than-expected regional gaming revenue should buoy fourth-quarter results.
The casino operator ended 2010 on a sour note, announcing it was taking down its "For Sale" sign. Ameristar was put up for sale in August, but the board of directors decided that a potential sale would not be in the best interest in the company or its stockholders. Typically, taking a company off the market indicates a lack of interest from private equity.
While Ameristar will no longer consider a sale, the committee will continue to look at other potential strategic alternatives.
In its third-quarter, Ameristar saw net income fall 18% due to higher expenses and promotional allowances. The shutdown of a bridge near Ameristar's Chicago casino last year continues to impact results by making the property harder to reach, while Pinnacle Entertainment's newest casino in St. Louis is putting pressure on Ameristar's most lucrative property in St. Charles.
For the fourth quarter, analysts are predicting a profit of 15 cents a share on revenue of $288.2 million.
--Written by Jeanine Poggi in New York.
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