Year to date, the average gaming operator stock has declined 75%. WYNN is down “only” 56% on the year and ISLE, which had been absolutely demolished since late 2006, is down 66%. The remaining stocks have dropped in a fairly tight band, ranging from -74% (PENN) to -89% (LVS).
What makes sense to me is that during a credit crisis, investors hammer one of the most heavily leveraged sectors in consumer land, gaming. No doubt the credit freeze is partly, if not mostly responsible for the gaming carnage. What doesn’t make sense to me is that, except for WYNN, the liquidity haves are dumped in with the have nots. PENN and BYD should be outperforming along with WYNN. PENN is actually underleveraged and maintains huge liquidity. BYD maintains average leverage but will de-lever at a faster rate than the industry. BYD’s liquidity is outstanding with $2.4bn in availability on its credit facility, no significant cash needs, and no debt maturities until 2013.
Divergence will ultimately occur. Best to be on the right side of this liquidity trade.