Casino Notebook: Earnings Estimates and Stocks Tumble

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More doom and gloom.

That's what casino investors faced this week after industry analysts slashed earnings estimates on

Circus Circus

(CIR) - Get Report

and

MGM Grand

(MGG)

, two of the sector's biggest companies. Not even positive comments Thursday from MGM executives on the company's quarterly earnings conference call could change what is becoming a depressing and apparently endless ritual.

By the close of trading Friday, Circus, MGM and

Mirage Resorts

(MIR)

all were near 52-week lows. Circus closed the week at 18 3/16, up 1/8, while MGM finished at 33 1/2, down a 1/4, and Mirage ended at 21 3/4, down 5/16. All three companies are off more than 25% from their 52-week highs, and Circus is now down some 60% from its all-time high, set in summer 1997.

What's worse, no one is suggesting that a turnaround is imminent. "The near-term trends are absolutely horrible,"

Salomon Smith Barney

analyst Bruce Turner says. Over the next three years several new casinos costing a total of more than $6 billion will open in Las Vegas, which is already apparently suffering a supply glut. This "will be one of the most challenging periods the industry has ever seen," says Turner, whose firm hasn't participated in any recent Circus underwriting projects.

Turner led the most recent round of earnings estimate cuts on Wednesday, lowering estimates on Circus Circus to 75 cents a share from $1.00 per share for the fiscal year ending on Jan. 31, 1999, to 85 cents from $1.15 for the 2000 fiscal year and to 85 cents from $1.25 in 2001.

Bear Stearns

analyst Jason Ader followed on Thursday, lowering estimates to 80 cents from 95 cents in current fiscal year and to 90 cents from $1.35 in 2000. In its most recent fiscal year, Circus, which runs three major casinos in Las Vegas and several others nationally, earned $1.06 per share; two years ago, the company made $1.72. Bear Stearns hasn't participated in any recent Circus underwriting projects.

"Someday, it will be a good stock again, but that's a long way from now," Turner says.

Turner isn't much more bullish on MGM Grand, which on Thursday reported first-quarter earnings of $16.3 million, or 28 cents per share, down from $30.2 million, or 51 cents per share, in 1997. The shortfall came as no surprise, since the company preannounced weaker-than-expected earnings in February, blaming bad luck at the gambling tables.

On Friday, Turner cut estimates on the company, which runs the world's largest hotel-casino, to $1.80 per share from $2 per share for this year and to $1.95 a share from $2.10 for 1999. He also lowered his rating on the company from hold-high risk to hold-speculative risk. His cuts came despite the fact that MGM management, while acknowledging that the company will face "World War III" in Las Vegas, sounded very bullish about the company's prospects in Detroit and South Africa on Thursday's conference call. Salomon hasn't performed any recent underwriting for MGM.

But Turner says he thinks the company is overoptimistic about Detroit. "Las Vegas will make or break this company," he says, adding that he doesn't expect MGM to be immune from the supply glut.

Not everyone agrees.

Donaldson Lufkin & Jenrette

analyst Brian Egger continues to rate the company a buy and says he's not overly concerned with MGM's first-quarter travails. "I like the company," Egger says. DLJ hasn't performed any recent underwriting for MGM.

* * * * *

Volume in

Primadonna Resorts

(PRMA)

surged again Friday, suggesting that the takeover rumors that have swirled around the company for the last few weeks aren't dead yet. Some 1.7 million shares of the company changed hands on the day, more than 11 times the usual trading volume in Primadonna, which closed at 17 15/16, up 1/16.

Primadonna declined to comment.

Analysts say the newest rumor has

Crescent Real Estate Equities

(CEI) - Get Report

buying Primadonna, which owns three casinos on the California-Nevada border as well as a 50% stake in the New York-New York casino on the Las Vegas Strip. Crescent has already taken a step into the casino sector, agreeing to buy

Station Casinos

(STN) - Get Report

in January in a $1.7 billion deal that's expected to close later this year. Station runs several casinos catering to locals in the Las Vegas metropolitan area, as well as two casinos in Missouri.

Like other Nevada casino companies, Primadonna has lately suffered from the glut of new hotel rooms in Las Vegas, with the company's first-quarter profits falling to $5.8 million from $10.1 million in 1997. Even New York-New York hasn't been immune; cash flow at the property fell in the first quarter to $26 million from $35 million last year.

Analysts speculate that Crescent may be interested in Primadonna because of the company's huge holdings of raw land, which Primadonna has indicated it may eventually develop into a retirement community. In addition, a new outlet mall next to the casinos that opens this summer may help to drive traffic into the properties, analysts say.