Station Casinos Up to Date in Kansas City

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Investors pushed

Station Casinos

(STN:NYSE) higher Tuesday after news of a strong opening month for the company's crucial new Kansas City riverboat overshadowed a decent but unspectacular earnings report.

Before the market opened, Station said it earned $6.9 million, or 20 cents per share, for its fiscal third quarter ended Dec. 31, down from $7.4 million, or 21 cents per share, in the year-earlier quarter. Analysts expected Station to equal its 1995 quarterly profit, according to

First Call

.

In a conference call discussing the report, Station President Frank Fertitta and Chief Financial Officer Glenn Christenson blamed the slight dip in earnings on surprise losses in Station's sports book, which cost the Las Vegas casino company $1.3 million. They noted that Station's cash flow rose 11% to $32.4 million in the quarter and that revenues gained 9% to $134 million.

But the conference call largely focused on the early returns of Station's Kansas City riverboat casino. Including one-time opening costs, Station has spent about $300 million on its Kansas City gambling palace. That has sparked analyst worries that the crowded Missouri casino market won't be able to support the company's massive investment. The intense worrying has made Station stock, trading at about nine times estimated fiscal 1998 earnings, one of the most undervalued stocks in the casino industry.

But the Kansas City casino, which opened Jan. 16, has been jammed so far, Station management said on the conference call. The property attracted 534,000 customers in its first 15 days, or an average of more than 35,000 customers per day. Fertitta said the average would have been even higher if blizzards had not made roads nearly impassable for two days. Casino revenues were $7.5 million, and Fertitta said they will probably rise as the weather improves.

"January's typically the worst weather month in Missouri," he says. "Our results would have been slightly better had we not had the bad weather. Our best months are ahead of us." So far, more than 40% of the casino¿s customers come from more than 50 miles away, Fertitta says. "Our sense is as we look around the market that we've grown the (Kansas City) market," he says.

Despite the generally upbeat outlook, some analysts questioned Fertitta about Station's debt burden, which hit $650 million at the end of 1996 and will jump $100 million more in 1997 as the company gets

Sunset Station

, its fourth Las Vegas casino, ready for opening. But Fertitta said the company has more than $270 million available on two lines of credit and sounded comfortable with Station's debt burden. He said the company will continue to expand by investing at least $100 million more in Station's other Missouri casino, located outside St. Louis. And he did not rule out a possible expansion into Detroit, where voters have authorized three new casinos.

"We have had discussions with people in Detroit," Fertitta says. "Given the right opportunity, with the right people, we could have an interest."

Station gained 1/4 to 10 3/8. Since early January, when

The Street

highlighted

the company's prospects, Station is up more than 12%.

By Alex Berenson

aberenson@thestreet.com