GIVE US YOUR POOR…HUDDLED MASSES

As positive as I am on MGM and most of the gaming operators as a trade, a dose of reality is in order. The market is powering gaming stocks higher, particularly those with Las Vegas exposure. Apparently, visitation to Las Vegas and Atlantic City was strong over the Christmas/New Year’s holiday week. However, one must consider the type of customer attracted to room rates slashed by 30% and lowered table minimums.

Heavy discounting is the reason Las Vegas was able to fill its rooms. The flow through on negative room rates is around 90%. Gaming revenues should be significantly lower, assuming normal hold, due to a lower end average customer and lower table revenues. From a profitability standpoint, this past New Year’s will not be viewed as a success.

However, with such bearishness surrounding the beaten down gaming sector heading into 2009, any superficially positive data point can have an impact. We pointed out as much in our bullish 12/26/08 post “A TALE OF TWO YEARS” which called for a January rally. The January Effect is indeed alive and well in this sector but keeping a short leash on this long trade probably makes sense.

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