Three months ago a Wall Street analyst did something unusual for his business.
He admitted he was wrong.
Andrew Zarnett, the lead gaming bond analyst for Deutsche Bank, issued an investor report in July downgrading some Station Casinos bonds from “buy” to “sell” and “hold,” concluding, “we were wrong as we were caught off guard by the quick deterioration of local Las Vegas fundamentals beyond our expectations.”
Zarnett is one of several analysts who have been busy downgrading the projected value of gaming investments.
These downgrades have come months after gaming companies first reported earnings declines, making the analysts’ actions appear somewhat delayed.
Analysts in general have been criticized as being cheerleaders for the investments they cover. Being positive may yield better access to company executives. Besides being paid for their research, these firms make money issuing bonds and other financial instruments for companies on their watch lists.
An invisible wall separates these departments, yet analysts are careful how they criticize these companies.
With analysts growing bearish by the day, the result is a widening gap between critics and the bulls. The latter are hanging on to the comforting mantras about Las Vegas: The gaming business is generally resistant to recessions, and business on the Strip will return stronger than it was before the downturn. That’s the way things have always been, after all.
For the complete story, please see Liz Benston, Analysts transform from bulls to bears, Las Vegas Sun, October 20, 2008.
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