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Alliance Gaming Shares Steady
Shares of Alliance Gaming recovered a bit Wednesday, after falling
24% Tuesday on an earnings warning and broker downgrade. Alliance lowered
earnings guidance, citing delays in regulatory approval for gaming in New
York and California, rising research and development expenses and lower yields
for some of its machines. Instead of $1.04 a share, the company now expects to
earn between 96 cents and $1 a share in 2004 vs. the $1.05 a share expected
by Wall Street. And this underperformance will continue — Alliance
expects to earn between $1.20 and $1.30 a share in 2005, a far cry from
the $1.43 expected by Wall Street.
Shares were up 25 cents, or 1.5%, to $16.40, having fallen $5.24 in
very heavy trading volume Tuesday. More than 13.4 million shares changed
hands, about 14 times the average volume.
But while Alliance blames uncertainty around the expansion of gaming
for its sliding estimates, J.P. Morgan analyst Harry Curtis downgraded
the company to underweight (its lowest rating) from overweight (its
highest rating). In Curtis’ view, Alliance is falling behind rivals like
International Game Technology (NYSE: IGT) and WMS
Industries (NYSE: WMS). (J.P. Morgan does and seeks to do business with
the companies covered in its research report and Alliance Gaming was or
is a banking client of JPM’s in last 12 months.)
"When we upgraded Alliance to overweight on March 1, the rating was
based on continued strength in system sales, as well as an acceleration
in new slot sales to … Indian casinos," said Curtis, in his downgrade.
"While these two factors are still in place, Alliance’s other lines of
business are disappointing."
One of the larger issues facing Alliance is the deployment of video
lottery terminals in New York, which has been delayed, as well as slower
deployment of wide-area progressive slot machines, which pool jackpots
and allow for massive one-time payouts. Ultimately, Curtis — who was
one of the company’s biggest bulls — concluded that Alliance’s fortunes
were unlikely to improve in the next 12 months, especially with WMS
moving into new markets.
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