Citing a litany of positive indicators that reflect continued economic growth in the Las Vegas market, Station Casinos on Monday reported record earnings for 2004 while predicting thriving prospects for 2005 and beyond.
The company, which is the sole operator or joint-venture partner in 14 Southern Nevada gambling halls, said its fourth-quarter reported revenues of $264.7 million grew 15 percent above the $229.9 million in the same three-month period in the previous year. For all of 2004, the company reported revenues of $986.7 million, an increase of 14 percent over $858.1 million in 2003.
Station Casinos, which also receives management fees from a Sacramento-area American Indian casino, said the company's earnings per share grew to 58 cents in the quarter, a 38 percent increase from a year ago. For the year, shares in Station Casinos earned $2.10 per share, a 65 percent jump.
"In all, 2004 was a blowout year for Station Casinos," company Chief Financial Officer Glenn Christensen said during a conference call with analysts and investors. "There is not a stronger local economy on the planet than Las Vegas. Our Las Vegas franchise achieved exceptional results and surpassed expectations."
During the call, Christensen said the company was increasing its guidance -- estimated earnings looking forward -- for all of 2005, saying Station Casinos expects to earn between $2.22 and $2.35 per share for the year.
"We are in an excellent position here and we're very optimistic going into 2005," Christensen said. "We have strong free cash flow and strong leadership in the Las Vegas market."
Station Casinos shares closed Monday at $58.85, up $2.26, or 3.99 percent.
Gaming analysts said no other casino operator relies as heavily on the Southern Nevada consumer as Station Casinos. The company's earnings reflected vibrant economic factors.
"Station Casinos continues to benefit from the significant population growth and substantial development in the Las Vegas locals community, including new housing coupled with an extremely robust local economy where unemployment is at a multiyear low and new job formation continues at a torrid pace," Bear Stearns gaming analyst Joe Greff said in a note to investors. "We think the locals market can continue to thrive over the near and longer-term given a steady pace of Las Vegas Strip projects. Station Casinos, in our view, remains the best growth story with the most visibility among the gaming operators with attractive supply-demand dynamics in the locals market plus a laddering of growth projects that goes through 2010."
Brian Gordon, a partner in Applied Analysis, a Las Vegas-based financial consulting firm, said the company is somewhat shielded from national and international events that would harm business potential for Strip properties and other tourist-based resorts. He said the company's business model reflects a vibrant economic forecast.
"The company is less susceptible to external factors than those with properties on the Strip," Gordon said. "Station is in a great position as Las Vegas continues to prosper."
During the conference call, company executives said the 400-room, $475 million Red Rock Station near Interstate 215 and Charleston Boulevard is expected to open in early 2006. Christensen predicted the results at Red Rock Station would be similar to the success the company has had with Green Valley Ranch, which completed a hotel and convention space expansion in the fourth quarter and has room reservations reflecting 95 percent hotel occupancy through the end of March.
"We're showing a 25 percent return on investment for Green Valley Ranch and we have a great platform in Summerlin," Christensen said. "Red Rock Station has double the room capacity of Green Valley Ranch and, considering the factors in the surrounding community, we're very optimistic for that project."
Soon after Red Rock Station opens, company executives said, construction would begin on a planned redevelopment of the Wild Wild West Casino site near Interstate 15 and Tropicana Avenue. Station Casinos controls five parcels around the Las Vegas Valley that could be developed into full-scale resorts while the company also has master-planned expansion projects for most of its existing properties.
"A project like Wild Wild West takes time to lay out and design," company President Lorenzo Fertitta said of the project that, according to concept paperwork submitted to Clark County planners, would be a 44-story hotel tower with 2,500 rooms and a 150,000 square foot casino. "We're going to build something extra special there so it takes time to develop."
Christensen said the company would develop its projects through free cash flow and a revolving credit line of $1 billion that was recently increased and extended to 2009.
Other growth opportunities ahead for Station Casinos will come from its potential management contracts with American Indian casinos. The company has four pending agreements with three tribes in California and one in Michigan. But land for the casino sites still needs to be recognized by the federal government before state gaming compacts can be negotiated. Christensen said revenues from those future projects weren't figured into the future guidance.
The company receives 24 percent of the income from the Thunder Valley Casino near Sacramento through its management agreement with the United Auburn Indian Community. However, a confidentiality arrangement with the tribe precludes the company from releasing the property's exact earnings.
"Station Casinos is a very simple story," Susquehanna Financial Group gaming analyst Eric Hausler said in a note to investors. "Supply growth is limited ... the company owns key parcels and properties for future development. The population and economy in Las Vegas are growing at a very healthy rate and Station Casinos is in the sweet spot of the supply (and) demand dynamic."