A Lagging MTR May Catch a Buyer's Eye

Since early May, shares of MTR Gaming Group (MNTG ) have plunged 50%, to 8.42 on Sept. 18. Why? The operator of thoroughbred racetracks, hotels, and slot-machine casinos posted June-quarter earnings of 13 cents a share, vs. analysts' estimates of 22 cents. But the sharp sell-off could attract a takeover, say some pros.

"The 50% decline was overdone," says Ryan Worst of Dresdner Kleinwort Wasserstein, who upgraded his rating from "add" to "buy." One MTR property is West Virginia's Mountaineer Race Track & Gaming Resort, with 359 rooms, 3,000 slot machines, and golf courses. Although the second quarter was dismal, "our expectations for 2003 have not changed," says the analyst, because revenue trends remain above his projections.

Rising costs in the past three quarters stemming from MTR's expansion--completed in July--affected second-quarter results. "But it provides a higher level of earnings visibility ahead," says Worst, who figures MTR will earn 72 cents a share in 2002 and $1.11 in 2003, vs. 70 cents in 2001. Worst has a 12-month price target of 14. "The low valuation and an underpenetrated market contribute to MTR's appeal as an acquisition candidate," says Worst. Charles LaLoggia, editor of Superstock Investor, which focuses on takeovers, says the major gambling companies are eager to get into "racinos," outfits with racetracks combined with slot-machine casinos. Among those he says could be interested in MTR: Harrah's Entertainment (HET ) and Park Place Entertainment (PFE ). MTR CEO Edson Arneault says he hasn't gotten offers but would not discount them if he did.

By Gene G. Marcial

    Before it's here, it's on the Bloomberg Terminal.