When it Comes to Casino Stocks, Bigger is Better

It is the tale of two cities.

After becoming one of Colorado’s premier destinations as a result of the Pike’s Peak Gold Rush in 1859 — and losing its luster shortly thereafter, when the mines stopped producing — Central City seemed poised for a comeback when the town and several of its mountain neighbors approved limited stakes gaming in 1990.

But after generating 42.7 percent of the state’s gambling revenues in 1992, Central City contributed just 10.1 percent in 2007, while Blackhawk, located just a mile further east (but closer to Denver) garnered 70 percent.

Even a new, more direct route to the town — the aptly-named Central City Parkway, which bypasses Highway 119, a two-lane winding road that, for years, was the only paved access way — hasn’t seemed to change Central City’s fortunes.

Two casinos that opened shortly after the parkway was completed in November 2004 have since closed their doors. The Teller House shut down in July 2005, while Scarlet's went out of business in September 2006.

Blackhawk, on the other hand, continues to flourish. Less concerned with maintaining its mining town ambience and with more room for development, Blackhawk has welcomed large gaming corporations and development companies like a Las Vegas stage show welcomes sequins.

Majestic Star Casino, Jacobs Entertainment Inc., Golden Gaming Inc., Ameristar Casinos Inc. (NASDAQ: ASCA), Isle of Capri Casinos (NASDAQ: ISLE) and Penn National Gaming (NASDAQ: PENN) all have multiple properties in the growing resort town.

Among the mid cap issues, Penn National Gaming has, perhaps, the most upside as it has appreciated nearly 590 percent since 2002, despite being down more than 14 percent this year — a year that has been hard on most gaming stocks. Recently, PENN shareholders approved a takeover bid by Fortress Investment Group LLC and Centerbridge Partners LP at $67 per share, with a 1½-cent premium for each day past June 15 that the closing is delayed. Penn National Gaming is currently trading at around $50 per share.

In the small cap arena, Ameristar is up better than 216 percent since 2003 and has been consistently growing its revenues, while Southwest Casino Corp. (SWCC.OB), a company that operates several casinos in Cripple Creek, Colo. (110 miles south of Blackhawk), may be the best of the micros.

However, since losing management control of two casinos owned by the Cheyenne and Arapaho Tribes of Oklahoma on August 17, SWCC stock has tumbled by almost 25 percent — suggesting, it would seem, that, at least in regard to casinos, bigger is better.

Comments

[Dan Weiss:]

Colorado casinos will be interesting to follow as several lawmakers are considering raising the maximum bets (they currently sit at just $5) and potentially allowing 24-hour gaming in order to raise more revenue for schools. If expanded gaming laws are allowed it could be of huge benefit to these companies.

vestopia.com

2008 Feb 10 12:34 PM