Shifting Sands, by Miriam Marcus - Forbes - 29th October 2008

Shares in casino and hotel operator Las Vegas Sands nearly doubled Wednesday as investors who had been betting against the gaming industry apparently decided to close out their positions and book their gains.

The casino business has been struggling as consumers continue to curb spending due to the U.S. housing downturn, diminishing credit, rising food costs and recession worries. Some companies have also had to delay or cancel development projects due to funding difficulties arising from the global credit crisis.

As the economy deteriorated, investors had become increasingly worried about the financial health of Las Vegas Sands. On Friday, the company said its billionaire chairman Sheldon Adelson and his family plan to take part in a capital-raising program with an unidentified investment firm.

The company is spending money to expand in Macau at a time that its established properties in Las Vegas are under pressure.

Shares of Las Vegas Sands rose 80.0%, or $3.96, to $8.91 . The stock had fallen as low as $4.32 earlier this week, but remains 93.6% below its year-ago price of $138.93. Rival Wynn Resorts also had a good day on Wednesday, gaining 24.9%, or $8.17, to $41.05.

Sand's ascent early in the day sparked call option buying, according to Interactive Brokers analyst Andrew Wilkinson, where investors obtained the right--but not the obligation--to buy the stock at a specified price within a specified time period.

The run-up seems to have led to a short squeeze on the stock in trading as the day progressed. As of Oct. 15, there was short interest of 24.9 million shares in the company. That's a significant 22.6% of the shares not owned by Adelson.

It was erroneously reported by several services that Las Vegas Sands was to report its third-quarter earnings after the closing bell Wednesday, but a Sands investor relations representative told Forbes.com that the company would announce the release date of its financial report in the next day or two.

Boosting Sands' performance was competitor MGM Mirage's reporting of funding commitments for its CityCenter project. MGM, which obtained a $1.8 billion senior bank credit facility earlier this month to help with its $9.2 billion CityCenter project in Las Vegas, said it has received additional commitment letters for more than $500.0 million and is working with joint venture partner Dubai World to get additional funds. The company is looking to secure a total of $3.0 billion in financing for the development.

MGM reported a 66.7% decline in third-quarter earnings early Wednesday, to $61.3 million, or 22 cents per share, compared with $183.9 million, or 65 cents per share in the year-earlier quarter. Revenues decreased 4.8% to $2.0 billion from $2.1 billion last year. Analysts polled by Thomson Financial had expected the casino operator to earn $89.2 million, or 31 cents per share, on sales of $1.8 billion.

"MGM missed with downside revenue and margin in Vegas operations ... but investors may have been expecting worse and headlines about a possible debt deal ease balance sheet concerns," noted Thomas Weisel analyst Jake Fuller.

Despite its poor earnings results, shares in MGM Mirage traded up 33.1%, or $4.42, to close at $13.75, on Wednesday, on its announced plans to issue secured debt.

Market Vectors Gaming, an exchange-traded fund that tracks the casino industry, was up 10.7%, or $1.61, to $16.70, on Wednesday. But the fund traded as high as $45 early this year, shortly after it was introduced.

(Credit: Forbes.com)

Media Man Australia Profiles

Casino News