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An Unlucky Alliance

The pursuit of Mandalay Resort Group (NYSE: MBG  ) by MGM Mirage (NYSE: MGG  ) has shareholders across the gaming sector salivating. For slot-machine maker Alliance Gaming (NYSE: AGI  ) , saliva turned to drool today as the company lowered its earnings guidance for 2004 and 2005. Down more than 20%, Alliance Gaming was the morning's biggest percentage loser on Wall Street.

Alliance had been expecting earnings of $1.04 a share for 2004. Today, that target was lowered to $0.96 to $1 a share. The reasons cited include lower yields on certain recurring revenue games, regulator delays in Nevada and New York, potential order delays, and a significant increase in research and development costs. That's quite a list.

Yet, bad as it sounds, earnings should still come in higher than last year's $0.92. That's hardly a bust, and the 2005 news is no kiss of death from Lady Luck, either. Earnings are expected to be $1.20 to $1.30 a share -- at minimum, a 20% increase, assuming the company comes in at the high end of earnings this year.

For those with chips (money, not semiconductors) to put down, the stock sells for a paltry 14 times forward earnings. International Game Technology (NYSE: IGT  ) , which, like Alliance, has a total debt approaching annual revenue, sells for 26 times forward earnings. Upgrade to cash-rich Shuffle Master (Nasdaq: SHFL  ) and you will pay 33 times forward earnings.

Alliance may have disappointed, but with 23.5% operating margins and a 31.8% return on equity, its fundamentals still appear decent relative to nearest competitor WMS Industries (NYSE: WMS  ) , not to mention most, if not all, its customer casinos.

Casinos offer flashing lights and names you can drop at cocktail parties (though you might want to keep that stake in The Donald's troubled Trump Hotels (NYSE: DJT  ) on the down low). Low-glitz Alliance, on the other hand, is a growing and profitable gamer that sells at a modest multiple to earnings. It could be time to ante up at a significantly better price than you could have gotten yesterday.

Talk to Gamblin' Fools or Card & Board Games aficionados on our lively discussion boards.

Fool contributor W.D. Crottydoes not own any of the stocks mentioned.

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