Shares of

Alliance Gaming

(AGI) - Get Report

fell 24% on Tuesday after the company lowered earnings guidance for 2004 and 2005, but bargain-hunters raised shares 3.4% on Wednesday, despite the fact analysts continue to downgrade the stock.

On Wednesday morning, Banc of America Securities analyst David Vas and Bear Stearns analyst Mark Abramson became the latest to lower their ratings on Alliance shares, with both downgrading the company from buy ratings. The previous day, J.P. Morgan analyst Harry Curtis dropped his rating on Alliance, which issued an earnings warning before Tuesday's session and fell $5.24 to $16.15.

Shares were moving higher early Wednesday, gaining 55 cents to $16.70, despite cautious statements and falling estimates from analysts. After lengthy conversations with Alliance management, Abramson of Bear Stearns told investors the company's shares were essentially in-line with the lower guidance.

"While the pullback in share price may have overshot yesterday, we are taking down our rating," said Abramson. "The stock is trading at approximately 17 times the new guidance. This is the average multiple at which shares had traded for several quarters." (Bear Stearns does and seeks to do business with the companies covered in its research reports.)

Vas, of Banc of America, concurred, telling investors the company's shares may get a small pop, but were essentially range-bound until Alliance starts outperforming again.

"Even though the stock has fallen dramatically over the past two months, we anticipate the stock will trade sideways over the next six to 12 months," said Vas, in his downgrade. "A small bounce off the bottom is possible, but it could take a few quarters for the stock to reestablish momentum." (Bank of America does and seeks to do business with the companies covered in its research reports.)

On Tuesday morning, Alliance lowered earnings guidance for 2004 and 2005, citing delays in regulatory approval for gaming in New York and California, rising research and development expenses and lower yields for some of its machines. Instead of $1.04 a share, the company now expects to earn between 96 cents and $1 a share in 2004 vs. the $1.05 a share expected by Wall Street. And this underperformance will continue -- Alliance expects to earn between $1.20 and $1.30 a share in 2005, a far cry from the $1.43 expected by Wall Street.

But while Alliance blames uncertainty around the expansion of gaming for its sliding estimates, analysts worry the company is falling behind rivals like

International Game Technology

(IGT) - Get Report

and

WMS Industries

(WMS) - Get Report

.

Of course, with Alliance shares down more than 50% in just two months -- some analysts defended the company. David Bain, analyst at Merriman Curhan Ford, a San Francisco-based brokerage, reiterated his buy rating and said shares were an attractive long-term proposition at these prices.

"We believe the company is undervalued," said Bain. "Most of the company's lowered guidance can be attributed to higher-than-expected costs to roll out technology that should ultimately position Alliance ahead of its peers." (MCF, the parent company of Merriman Curhan Ford, does and seeks to do business with the companies covered in its research reports.)