By Angela Pruitt
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Gulf Coast casinos are expected to brave the wrath of Tropical Storm Gustav even if it causes some loss of business during the long holiday weekend.
While it's hard to assess how much damage Gustav could inflict on Mississippi and Louisiana gaming, it's not expected to be as devastating as Hurricane Katrina's wrath three years ago. The U.S. National Hurricane Center shows Gustav arriving on the central Louisiana coast of the Gulf of Mexico on Tuesday morning.
"I think there are issues with property damage. But I'm not changing any investment opinion or earnings estimates," said Dennis Forst, an analyst at KeyBanc Capital Markets. He added he wasn't that concerned about any short-term earningsimpact for the companies operating in the Gulf Coast.
"I think that the concerns right now sound a little overblown to me," he said. "There are likely to be some modest losses because of closures ... but it won't be as dramatic as 2005."
Analysts said one notable difference from 2005 is the fact that Mississippi no longer has riverboat casinos andall of them are currently land-based. Most public national gaming companies have properties in Louisiana and Mississippi, but Pinnacle Entertainment Inc. (PNK) and Isle of Capri Casinos Inc. (ISLE) stand out as having the largest exposure, analysts said.
Pinnacle receives 80% of its property cash flow from Louisiana, some 42% in Lake Charles and the balance in New Orleans, according to KeyBanc. Meanwhile, Isle of Capri derives 15% of EBITDA from two riverboats in Lake Charles and 5% from a property in Biloxi, Miss., KeyBanc said.
Jill Haynes, a spokeswoman for Isle of Capri, said her company is "working closely with authorities" in Mississippi and Louisiana to take all the necessary precautions.
In terms of the financial impact of casino closures, Haynes noted the gaming company has adequate insurance. "The top priority is the safety of our guests and employees," she said.
Pinnacle spokeswoman Pauline Yoshihashi said the company is focused on its Lake Charles and New Orleans casinos and has a lot more generator backup and water than in 2005 to keep the properties running for five days on a standalone basis.
"At this point, it is difficult to project the significance of Gustav, but the storm's prospects could reduce the already low chances that 3Q results will be a positive catalyst for shares" of Pinnacle and Isle of Capri, said Brean Murray Carret & Co. in a report Friday.
"Given the drive-in nature of the Lake Charles market ... and economic environment, high gasoline prices, etc., it is possible that the potential of a hurricane on late Monday could dampen traffic over the long holiday weekend," the firm said.
Brean Murray added that given Pinnacle is "a long-term story ... the significance of Gustav is further reduced, in our view."
-By Angela Pruitt, Dow Jones Newswires; 201-938-2269; angela.pruitt@dowjones.com
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(END) Dow Jones Newswires
August 29, 2008 15:35 ET (19:35 GMT)