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Sorry to knock the regionals again but are there any catalysts to get these stocks to reverse fortune?  The numbers look bad and that’s with a gas tailwind.

Illinois, Indiana, and Michigan are all out for August and they look like crap.  Same store revenue fell 10%, 12%, and 5%, respectively, and the moving average line is negative and trending downward for each state.  If this is recovery, I’d hate to see a depressed environment.

                                                                     REGIONAL ROLL - Illinois August Revenue

                                                                     REGIONAL ROLL - Indiana Delta Chart

Here are the catalysts.  Try and find a positive one among them.

  • ISLE did not provide any comfort on their 8/26/09 conference call:
    • “Cost reductions may be over”
    • “Discounting accelerating”
    • July no better than May and June
    • No improvement in August other than an easier comparison
  • Gas price tailwind reversal – this is a biggie
    • Despite 50% lower gas prices year-over-year, gaming revenues look terrible.  We’ve shown that every 10% change in gas prices has a 1.5% inverse impact on regional gaming revenue.  What happens when gas prices are up 50% in December and into 2010?  See our recent note “GAMING REGIONALS: NOT YET IN THE RECOVERY ROOM” (08/23/09)
  • The Consumer – Housing, the “wealth effect”, need vs want
    • We and our macro team have written extensively on the long-term structural issues facing the American consumer
  • Regression to the mean
    • Casino revenue as a percentage of PCE keeps falling from its mid-2008 peak.  We’ll have more on this in a later post

So why do the analysts show 2H09 growth in revenues for most of the regional gaming companies (see below)?  Growth in 2010 might even be a stretch, especially considering the gas headwind in the first half of 2010.  A recovery thesis looks very premature.  Look for estimates to come down for most of the regionals.

                                                                     REGIONAL ROLL - REGIONALS 2010 2H09