Merrill Lynch downgraded Ameristar Casinos (ASCA ) to neutral from buy.
Analyst Rachael Rothman says Ameristar's 44 cents third-quarter earnings per share is below the 58 cents estimate. She downgraded on an increasingly promotional environment in St. Louis and Kansas City, where Ameristar competes head-to-head with Harrah's Entertainment's casinos. Rothman notes this trend is likely to continue when Argosy Gaming opens new a Kansas City casino in December.
She cut the $1.88 2003 earnings per share estimate to $1.72, and trimmed the $2.09 2004 estimate to $1.87. Despite the downgrade, she cites some positives: Ameristar's 2004 run-rate free cash flow remains substantial, the company has best-in-class assets, and the stock is reasonably valued. Rothman thinks the promotional environment next few quarters is likely to stabilize improving margins in the region.