Bullish Circus Circus Fuels Casino Rally

Las Vegas is booming again, and the chips are piling up on the casino companies’ bottom lines.

Major casino shares rocketed on Monday after Circus Circus Enterprises, operator of Luxor, Excalibur and the new Mandalay Bay hotel/casinos, said first-quarter earnings will beat estimates thanks to strong traffic at its Las Vegas properties.

Circus Circus also said it would buy back as much as 15% of its outstanding stock and ask shareholders to vote on a name change to Mandalay Resort Group at its June 17 annual meeting.

The company’s shares zoomed $4.88, or 23%, to $25.94, the highest price since March 1998.

Circus Circus said first-quarter operating earnings will be in the range of 40 cents to 42 cents a share, versus Wall Street’s expectation of about 25 cents.

The company credited high occupancy rates and room-rate increases in Vegas, where Mandalay Bay opened March 2.

“It reminds people of the power of room-rate increases,” Prudential Securities analyst Joseph Coccimiglio said. “There’s really no cost to raise room rates. It almost all goes to the bottom line.”

Vegas tourist traffic is increasing as people are being drawn by new resorts, including Mandalay Bay and Mirage Resorts’ Bellagio. On Monday, the privately owned $1.5-billion Venetian opened.

BancBoston Robertson Stephens analyst Harry Curtis said Vegas room rates are up an average of 15% from a year ago.

While some analysts still fear the city is overbuilding, the new resorts apparently are having the intended effect: drumming up new interest on the part of gamblers and gawkers worldwide.

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High Rollers

Major casino stocks soared Monday, adding to their year-to-date gains. The stocks were severely depressed late last year amid worries that Las Vegas was becoming overbuilt. But new hotel/casinos are again raising Vegas traffic. Major stocks, their year-to-date gains, and stock price-to-earnings (P/E) ratios based on analysts’ consensus estimates of 1999 earnings per share:

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Monday Monday Gain 1999 Stock Ticker close change year-to-date P/E Circus Circus CIR $25.94 +$4.88 +129% 26 Station Casinos STN 16.38 --0.06 +100 26 Park Place PPE 11.63 +0.81 +82 24 MGM Grand MGG 48.00 +4.00 +77 30 Mirage Resorts MIR 25.50 +3.06 +71 23 Harrah’s Ent. HET 24.56 +2.56 +57 17 Aztar AZR 7.25 +0.31 +43 24 S&P; 500 index 1,354.63 +1.5 +10 29

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Sources: Bloomberg News, Zacks Investment Research