A pair of sell-side gaming analysts are urging high-yield investors to add to their holdings in the sector. They predict a rally when second quarter earnings announcements kick off this week with Boyd Gaming. Jacques Cornet, analyst at CIBC World Markets, says gaming credits have traded off of late because money managers are liquidating assets to pay back investors fleeing high-yield and its telecom-related woes. He expects many gaming companies to easily beat analysts' estimates, and recently upgraded the sector from "market weight" to "outperform."
In the first six months of the year gaming returned +6.97% versus the CIBC World Markets high-yield composite index, which turned in a -2.46% performance. Cornet says gaming will return 5-7% in the second half, compared to the 3-4% overall high-yield return forecast by CIBCs strategy group.
Cornet recommends the Argosy Gaming 10.75% notes of '09 (B2/B+), which were bid at 111 last Thursday, the Ameristar Casino 10.75% notes of '09 (B3/B-), which were bid at 99, and the Penn National 11.125% notes of '08 (B3/B-), which were bid at 108. All are high-coupon bonds with a reasonable chance of being called in the next three years, providing a way to limit volatility in a very apprehensive market, he says. John Kempf, gaming analyst atGoldman Sachs, says a lack of new supply in the sector should also help. He recommends the bonds ofAlliance Gaming andHollywood Casino along with those of Penn National. He declined to set a target for sector or credit performance, however.