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Mikohn's Big Payout Could Be a Buyout

In Las Vegas, slot-machine makers are on a roll: Stocks have rebounded sharply from mid-September lows. But one laggard is Mikohn Gaming (MIKN), which has developed an innovative line of slot machines based on board games such as Battleship, Yahtzee, Clue, and Trivial Pursuit. Its shares haven't joined the rally mainly because it has had little Street following. "Mikohn may be the best value in the entire group," says one California hedge-fund manager, who has been snapping up shares, currently trading at 5, down from a high of 8.50 in early July.

One other reason he is accumulating shares: Mikohn, which has 2,600 slot machines that it leases to casinos, is a potential takeover target in a consolidating industry. This pro notes that Australia's top slot maker, Aristocrat Leisure, has a mere 3% market share in the U.S.--and has said it hopes to hit 20%. So far, Aristocrat has bought two small U.S. gambling machine makers this year. Mikohn, which expects to lease out an additional 1,200 machines to casinos this year, is a "logical acquisition" for Aristocrat, says the fund manager.

"Mikohn has provided some of the most compelling gaming products and equipment around the world since 1987," says David Bain at Roth Capital Partners, who rates the stock a buy. He expects the company to earn 59 cents a share this year on projected sales of $100.8 million, and $1.41 in 2002 on sales of $111.2 million. By Gene G. Marcial

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