Merrill Lynch downgraded Argosy Gaming (AGY) to neutral from buy.
Analyst David Anders says his downgrade is based on concerns over increased competition, the potential for legislative changes that may hurt earnings growth, and the potential disruption to the gaming experience from ongoing expansion projects.
Nonetheless, he remains somewhat positive, as the company has a strong management team. He notes Argosy is currently trading at about 5.9 times 2003's estimated enterprise-value-to-EBITA, in line with its peers' range of a 4.9 to 6.5 multiple.
While valuation looks reasonable, he thinks most good news is priced in while the market seems to be discounting the potential threat of legalized gaming in Kentucky or Ohio. He sees $2.65 2002 earnings per share (GAAP).