7 Casino Earnings: The Winners & Losers

NEW YORK ( TheStreet) -- Casino first-quarter earnings showed some big winners and losers.

MGM Resorts

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MGM Resorts ( MGM) narrowed its first-quarter loss, as revenue rose slightly. The news sent shares of the stock soaring, with MGM gaining more than 10% since it reported results on Wednesday.

During the quarter, MGM lost $89.9 million, or 18 cents a share, compared with a loss of $96.7 million, or 22 cents, for MGM in the year-ago period. Excluding items, MGM actually lost 16 cents a share, better than the loss of 19 cents analysts' predicted.

Revenue jumped 3% to $1.5 billion, matching Wall Street's outlook. The boost in revenue came from an increase in room prices and occupancy rates, as well as improvement in its convention business.

"MGM showed how it can monetize as the environment improves and we were most pleased to see its lower-tier Strip properties show performance, rather than just one or two assets doing so," Bain wrote.

Its CityCenter property also beats investors' low expectations, and at least appears to have turned a corner.

In Macau, where MGM has a joint-venture with Pansy Ho, its share of operating income improved to $62 million compared with $26 million last year.

MGM Resorts said it had $12.3 billion in debt as of March 31 and $431.3 million in cash.

The company's potential upcoming Hong Kong initial public offering has been a major focus for investors, with some speculating the deal could raise as much as $1 billion.

In April, the casino operator founded by billionaire Kirk Kerkorian said that partner Pansy Ho will sell as much as 23% of MGM China Holdings in an initial public offering and another 1% to MGM Resorts. This sale would boost MGM's stake in the company to 51%.

Gaining control would give MGM the opportunity to consolidate its Macau operations on its books.

Ameristar Casinos

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Ameristar Casinos ( ASCA) could be a good way to play a domestic economic recovery, as its profit more than doubled in its first quarter, as it reduced its interest expenses and promotions.

But Sterne Agee analyst David Bain warned that the casino operator needs more tangible growth catalysts to warrant growth in the stock and obtain a multiple outpacing other regional names.

"Ameristar Casinos remains top-of-class in terms of asset quality, and while it continues to generate industry-high margins within its regional peer group, there is no identifiable catalyst to invigorate a significant upward share trend from current levels," he wrote in a note.

During the quarter, Ameristar earned $21.8 million, or 37 cents a share, compared with $10.7 million, or 18 cents, in the year prior. Excluding charges, Ameristar earned 41 cents a share, easily topping the 29 cents Wall Street predicted.

Revenue climbed 2% to $308.7 million, also ahead of estimates of $305.2 million.

Ameristar warned that its Hotel Vicksburg faces a possible flood risk later this month, based on estimates by the U.S. Army Corps of Engineers for the Mississippi River. As a result, it may be forced to close the casino for a period of time.

The company said it intends to pay down its balance sheet with free cash flow and is on the lookout for acquisitions.

Las Vegas Sands

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Las Vegas Sands ( LVS) was one of the biggest losers of the quarter, according to Wall Street.

Shares of the casino giant run by Sheldon Adelson, plunged more than 11% following its disappointing results. While Macau once again buoyed results, Las Vegas and Singapore fell short of expectations due to low table hold.

During the quarter Las Vegas Sands earned $228 million, or 28 cents a share. On an adjusted basis earnings were 37 cents on revenue of $2.11 billion. Analysts were calling for a profit of 44 cents a share on revenue of $2.14 billion.

Singapore was the primary focus among investors, who are now questioning if expectations are too high for the Marina Bay Sands flagship property. For the three-month period, Marina Bay Sands generated $284.5 million, well below Wall Street's forecast of $325 million. Low hold impacted results by $26.5 million, and the remaining shortfall relates to higher expenses, including higher bad debt, accrued incentive compensation and entertainment expense, J.P. Morgan analyst, Joseph Greff, notes.

"While Las Vegas Sands' first-quarter results do not, in our view, call into question a compelling multi-year secular growth story, we acknowledge that some investors may call into question the achievability of robust Street expectations for Marina Bay Sands, and believe that results in Singapore -- rightfully or wrongfully -- are the primary driver of the stock for the time being," Deutsche Bank analyst Chris Woronka wrote in a note.

In Sin City, Sands posted adjusted EBITDA of $65.2 million, also short of forecasts.

Macau reported EBITDA of $378.6 million, ahead of consensus estimates of $356 million.

The company said construction of Sites 5 & 6 in the Chinese gambling enclave is about five weeks behind schedule due to a worker shortage in Macau. It is currently in the process of negotiating with two international brands for two of the hotel towers being built after Shangri-la dropped out. Sands expects to open phase one in the first-quarter of 2012.

Nonetheless, Greff reaffirmed his overweight rating. " We view weakness Wednesday as an enhanced buying opportunity given attractive Asian growth, likely reset expectations in Singapore, and a favorable valuation-to-growth relationship."

Shares of Las Vegas Sands have been pressured following news that it is being investigated by federal regulators both domestically and in China regarding potentially illegal business practices in Macau.

The case could potentially be a major headwind for the company moving forward.

"We believe that Las Vegas Sands presents the Street with a particularly intense conflict for this and future quarters until the company's outstanding investigations are resolved," Jeffries analyst David Katz, wrote in a note. "The upside generated by the company's operational momentum could be substantially offset by the ongoing regulatory investigations."

Boyd Gaming

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Boyd Gaming ( BYD) narrowed its loss in its first quarter, but Wall Street was expecting the company to turn a profit.

During the three-month period the regional operator reported a surprise loss of a penny on an adjusted basis compared with analysts' estimates of a profit of 1 cent. Revenue rose 36% to $664.9 million, also below consensus of $568.7 million.

This shortfall was in part due to weakness at its Borgata casino in Atlantic City and, to a lesser degree, its Las Vegas locals segment.

Total costs and expenses climbed to $516.8 million from $379.3 million. Interest expense rose to $57.3 million from $29 million.

"We continue to think that 2011 consensus EBITDA is too high due to less-than-inspiring results from the Las Vegas locals market," J.P. Morgan analyst, Joseph Greff, wrote in a note. "Overall, we view Boyd's Las Vegas locals markets as the critical driver of its equity value, and this is a market that will endure tough sledding in the near term, in our view, given high unemployment, limited job growth in Clark Country, a still rough housing environment and increased promotional activity for its major casino operator competitors."

The key for Boyd will be its ability to continue to reduce costs and allow for significant flow through on marginal revenue, Wells Fargo analyst, Carlo Santarelli, notes.

Earlier in the week, the company announced plans to sell its 5,600-seat Dania Jai-Alai arena in Florida for $80 million to a group of private investors.

Pinnacle Entertainment

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Pinnacle Entertainment ( PNK) is a stock to watch, according to analysts, who foresee regional gaming revenue improving throughout the year.

While Pinnacle posted a 94% plunge in its first-quarter profit, last year's period was artificially boosted by a gain related to property sales and an insurance claim settlement.

"The Pinnacle story remains a solid one, in our view," Bain wrote in a note. "While its stock multiple will likely lag that of competitor Penn National Gaming due to less top-line growth and less diversification leading to more significant risk, we feel as if Pinnacle shares are currently priced for the negative and are not reflective of many of the positives."

During the quarter, Pinnacle earned $2.4 million, or 4 cents per share, compared with $36.7 million, or 60 cents, a year earlier. But adjusted earnings of 10 cents a share topped Wall Street's forecast of 5 cents.

Revenue grew 10% to $287.7 million, slightly shy of analysts' estimates of $289.5 million.

"We continue to believe that Pinnacle's relatively new CEO, Anthony Sanfilippo, and his team will drive increased operating efficiencies, allocate capital prudently and focus on core businesses/assets," Greff wrote.

Penn National Gaming

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Penn National Gaming's ( PENN) first-quarter topped expectations, and the regional casino operator issued second-quarter and full-year outlooks above consensus estimates.

For the three-month period the company earned $178 million, or 48 cents a share, above analysts' outlook of 41 cents. Revenue rose nearly 13% to $667 million, better than the $664.4 million Wall Street forecast.

Looking ahead, Penn foresees second-quarter earnings of 47 cents a share, compared with the 41 cents from analysts. For the full year it is calling for a profit of $1.64 a share, also better than estimates of $1.53.

This new guidance may even be a bit conservative, according to Santarelli.

"We continue to believe Penn offers investors the best way to play any potential regional gaming recovery, even if that recovery is a slow one or another early year head fake," Bain wrote.

While the company's developmental pipeline is well known, Bain says it is underappreciated by investors. Penn's inclusion of table games at its Pennsylvania and West Virginia properties, and the opening of its Maryland slot parlor should also help lock in potential growth.

"We believe Penn will continue to be a beat and raise story throughout 2011, and we anticipate continued appreciation for the development pipeline as each of the projects gets closer to opening," Santarelli wrote.

Wynn Resorts

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Wynn Resorts ( WYNN) kicked off earnings season for the casino sector on a high note, reporting a nearly six-fold surge in its first quarter profit.

For the three-month period, the casino giant earned $173.8 million, or $1.39 a share, compared with $27 million, or 22 cents, in the year-ago period. Analysts were calling for a much smaller profit of 73 cents a share.

Revenue jumped 39% to $1.26 billion, also better than Wall Street's estimates of $1.15 billion.

Of course, most of this gain came from Macau, which posted a 66% jump in profit of $189.7 million, while revenue grew 47% on strength at VIP tables and slot machines. Investors continue to focus on Wynn's growth potential in the Chinese gambling enclave, despite tougher comparisons going forward.

But Wynn could lose some of this market share following the opening of Galaxy Macau in May and a bit more after Las Vegas Sands opens Sites 5 & 6.

The Las Vegas recovery remains choppy. Wynn's revenue in Sin City rose 24%, but most of that was luck, as the company saw higher-than-expected wins at table games.

But Las Vegas now represents less than 30% (and shrinking) of Wynn's total revenues.

Wynn also announced that it is increasing its quarterly cash dividend to 50 cents from 25 cents. "We believe this is a solid move, as it allows the company to return additional cash to shareholders while continuing to maintain one of the strongest balance sheets in our gaming coverage universe," Greff wrote.

At the end of the first quarter, Wynn had a cash balance of $1.4 billion and total debt of $3.2 billion.

--Written by Jeanine Poggi in New York.

>To contact the writer of this article, click here: Jeanine Poggi.

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