. Before joining
, Curtis followed the gaming industry at
Salomon Smith Barney
in Denver. He was also previously a broker at
Drexel Burnham Lambert
Industry Outlook and Style
Curtis' outlook for the gaming sector is decidedly bearish: "The outlook for Las Vegas is difficult at best, not only because of a challenging economic environment but also because of the 'been there, done that' factor." Once customers have visited the new hotels, he says, they're less inclined to return without a new attraction to draw them.
In addition, the Las Vegas market is facing greater competition from gambling on Indian reservations in California. Curtis notes that airfares have also climbed. "When you combine those factors with a softening economy and a lack of new attractions, all of those issues are conspiring to make it a challenging year this year." He doesn't foresee any new building in Las Vegas for several years but believes 2002 will be a better year for the group, as he projects a stronger economy and easier comparisons.
But the Robertson Stephens analyst notes that it's important to distinguish between drive-in or local markets (e.g., riverboats) and tourist markets (primarily Las Vegas). While a slowing economy will likely have a negative impact on the tourist markets, those gaming sites that attract local customers "should still expand in an environment with 0% to 2%
GDP growth," he says. In today's climate, he prefers the riverboat markets to Las Vegas because "there's less capacity, there's no new capacity growth and they're local markets where the client base drives rather than flies in."
Among casino operators, the only company for which he has a buy recommendation is
. The company has considerably less exposure to Las Vegas than most other operators, is experiencing growth in many of its markets and generates half its cash flow from the riverboat markets, according to Curtis. "We think that the overhang of the stock has been
the bankruptcy of one of its casinos in New Orleans, and that should be resolved within the next month."
But like his first-place counterpart, Curtis names
International Game Technology
as his top pick. As the beneficiary of an equipment replacement cycle, he expects the slot machine manufacturer to reach at least $70. (Robertson Stephens has not done investment banking for either company.)
Favorite stock for next 12 months:
International Game Technology
"If anything, IGT's new video products are driving the replacement cycle faster than expected. In addition, with an installed base of approximately 600,000 slot machines domestically, with an average age well over five years, demand for IGT's growing library of machines should be strong for at least two to three years."
Curtis also says that the new machines' cashless system will further extend the replacement cycle, another boon for the company. And he notes that IGT's megajackpot games are growing faster than anticipated.