Gambling-Firm Insiders Sell Stock, Cite Tax, Retirement, Diversification Plans
Insiders at two high-flying gambling companies have sold stocks during the past two months, but they insist they aren’t folding and cashing in their chips.
The officials at Promus Cos. and Grand Casinos Inc. say their sales resulted from tax considerations or retirement plans, or were made simply to diversify, and don’t reflect their companies’ prospects.
Some analysts, however, have expressed some concern about the two companies’ reliance on the ``emerging markets″ of the gambling industry. The term doesn’t refer to Mexico or Russia, but to Mississippi, Louisiana, Illinois and other, mostly Midwestern or Southern states, where gambling has begun to penetrate in the past few years.
Emerging gambling markets are divided into four sectors: land-based; dockside barges; riverboats, and Indian reservations. They are more volatile than the more traditional gambling sites of Las Vegas and Atlantic City, N.J., says Jason Ader, gaming analyst for Smith Barney.
``We have some concerns about these companies,″ says Mr. Ader, who adds that the timing of the sales makes him skeptical. The fantastic growth in the industry from 1988 to 1994 was in part because of the expansion into these new markets, but no new state approved gambling in the 1994 elections, and no state is expected to do so this year either, Mr. Ader says.
Promus and Grand Casinos ``are more exposed to changes in the market and more vulnerable to intense competition,″ says Danny Davila, gaming analyst for JW Charles Securities. He isn’t surprised to see insiders sell given the recent rise in the whole group. ``I would expect to see insider selling across the board″ in the sector, he notes. Indeed, as recently as December, Grand Casinos sold for around $13 a share. It has traded recently around $24.75 a share in New York Stock Exchange composite trading. Promus has traded around $39.25, also in Big Board composite trading.
Brian Egger, casino analyst at CS First Boston, downgraded Promus, of Memphis, Tenn., to ``hold″ from ``buy″ Monday. He cited the recent rise in the stock, which has jumped almost 30 percent during the past year.
But other analysts say Promus and Grand Casinos have a bright future, and the emerging-market blues may be behind them. ``I think they’re doing really well,″ says Amy de Rham of Montgomery Securities in San Francisco. ``The worst emerging markets are bottoming out.″
Ms. de Rham says some investors did become worried when they saw that Thomas Brosig, executive vice president of Grand Casinos, last month dumped 50,000 shares for $16.50 apiece. Vice President Stanley Taube also sold 50,000 shares in March for $22.50 each, leaving him with 1.2 million shares.
Mr. Brosig couldn’t be reached for comment. Mr. Taube says he sold as part of ``an orderly retirement plan.″ The sales had nothing to do with fears of volatility in the new markets, he says, adding that two gambling sites in Louisiana, at Marksville and Kinder, ``have exceeded our expectations.″ Kinder is attracting heavy traffic from Texas, where the legislature recently voted to bar gambling from the state, Mr. Taube notes. ``If I thought the company was in trouble, I wouldn’t have sold,″ he affirms.
At Promus, spokesman Ralph Berry insists the sales, which ranged between 8 percent and 16 percent of total holdings from among several vice presidents and President Philip Satre, ``do not reflect at all on their views on the company.″
``In the case of each of them, it was the final year of a stock plan, and these were sales to pay the taxes related to those grants,″ Mr. Berry says.
The sales at both companies took place after a steady climb in prices. Again in both cases, however, the stock price kept climbing somewhat after the sales.
One company where insiders have gone on a semibuying spree was CompUSA Inc. The Dallas-based midcap stock, traded on the New York Stock Exchange, makes computer hardware. Executives’ purchases come after a steady runup in price from a low of $6.88 last summer.
CompUSA President James Halpin notes that 13 insiders bought 81,000 shares at an average price of around $18.50 each in the last available ``window,″ which was in February. Executives have bought in each of the last three ``windows,″ he adds. ``People only buy stock for one reason.″ A ``window″ is a specific period when CompUSA executives are allowed to buy shares, and executives who buy stock aren’t allowed to sell for six months. The company’s has traded recently around $20.375 in Big Board composite trading.
Ursula Moran, specialty retail analyst for Sanford Bernstein in New York, believes CompUSA will ``beat most people’s sales expectations.″ She says personal computers ``are flying out of stores, and that’s what CompUSA’s business is. The whole industry has been booming.″ Insiders are buying because they don’t think this is the top, she adds. Nevertheless, she has rated the stock ``underperform″ because she believes it is too expensive at this point.