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NEW YORK (AP) - Atlantic City casino operators may begin facing an increasingly competitive promotional market as the Borgata Hotel Casino & Spa, jointly owned by Boyd Gaming Corp. and MGM Mirage Inc., looks to stay in front of the action, squeezing players like Harrah's Entertainment Inc.
In July, Borgata rolled out phase one of a $525 million expansion project that included the addition of three new restaurants and more casino floor space. The company plans to add a $325 million, 800-room hotel tower in the second phase of the project, which is expected to open late next year.
Borgata benefited from the July rollout, as its August Atlantic City revenue climbed 14 percent, according to the New Jersey Casino Control Commission.
Morgan Stanley analyst Celeste Mellet Brown said in a Monday client note that Harrah's did not fair as well, as its combined Atlantic City revenue edged up just 2 percent for the month. The results include its Showboat, Marina, Bally's and Caesars properties.
A three-day shutdown of Atlantic City casinos in July due to a state budget deadlock impacted all of their results, but exact figures were not known.
Analyst Joseph Greff of Bear Stearns said in a Monday client note that Atlantic City's environment had become overly promotional in August, as casino operators contended with Borgata's expansion. He noted that "some operators reported high levels of comping that were not seen since Borgata opened in summer 2003."
Greff cut his third-quarter earnings estimate for Harrah's to 95 cents per share from $1.01 per share on lower earnings before interest, taxes, depreciation and ammortization from its Atlantic City properties. He also lowered his price target to $77 from $78.
The area's casino operators appear to be watching Borgata closely, shadowing its movements.
"We believe the Atlantic City market has cooled its promotions a bit in September (likely because Borgata has slowed its own promotions) so we believe, at least at this point, that the fourth quarter should not be as bad as the third quarter for Harrah's and the Atlantic City market," Greff said.
In a Monday client note, David W. Anders, an analyst with Merrill Lynch, said he was concerned that more competition from Borgata would create "the potential for margin deterioration" at Harrah's.
Anders reduced his third-quarter earnings per share estimate to 97 cents from $1.02 and his full-year estimate to $3.45 from $3.51, but maintained a "Neutral" rating on the company. Wall Street expects Harrah's to earn $1.02 per share for the quarter, and $3.71 for the year, according to Thomson Financial.
Shares of Harrah's gained $1.45, or 2 percent, to $64.47, while Boyd added 72 cents, or 2 percent, to $36.10 in morning trading on the New York Stock Exchange. MGM climbed 80 cents, or 2.2 percent, to $37.61 on the Big Board.
© 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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