Cashing Out Casinos' Q1

Virtually all of the major casino operators on my investment radar have reported Q1 results, save for Isle of Capri. As an industry, casinos continue to produce record results, with any hiccups stemming more from local competition than weakness in demand. Overall, I doubt that the general sentiment toward the gaming industry could be any higher -- which has unfortunately left no obvious investment values at the moment.

I'd like to discuss the Las Vegas Strip performance and the prospects for Harrah's Entertainment (NYSE:HET). But first, a few notes on just how hot this market has gotten.

• Did anyone imagine that Wynn Resorts (NASDAQ:WYNN) would sell a sub-concession in Macau for $900 million?

• The bidding war over Aztar (NYSE:AZR) has gotten so out of control that the highest bidder, Columbia Sussex, preempted a rival $51-per-share bid (or, more specifically, an amended merger agreement) from Pinnacle Entertainment (NYSE:PNK) by reraising its own bid from $53 to $54 per share.

• Given the frenzy over Aztar's Tropicana Las Vegas and its 34 acres of land, industry giants MGM Mirage (NYSE:MGM) and Harrah's Entertainment now look pretty smart for snapping up Mandalay Resort Group and Caesars Entertainment, respectively, in Las Vegas Strip megadeals back in summer 2004. MGM Mirage now owns 831 acres of land on the Strip, 350 acres of which are undeveloped or underdeveloped. Harrah's owns 330 Strip acres, 100 of which are underdeveloped. With the latest bids, the implied price of the Tropicana Las Vegas land is up to something like $25 million per acre.

Las Vegas Strip highlights
The Las Vegas Strip market is stronger than ever. On the high end, Wynn Las Vegas -- which opened last April -- posted an astounding $279 of RevPAR (revenue per available room), while Las Vegas Sands' (NYSE:LVS) Venetian turned in a ridiculous 99.9% occupancy rate for the quarter. MGM Mirage's Bellagio was the most profitable of the three, with adjusted EBITDA of $110 million.

MGM Mirage also showed healthy gains across the Strip, as RevPAR at the company's pre-merger Vegas Strip properties climbed 3% to $175 on flat occupancy at 97%. Meanwhile, occupancy at the Mandalay properties acquired last summer was 93% in the first quarter, up from 90% year over year. The company also noted that synergies from the merger have now resulted in cost savings of $145 million on an annualized basis.

Harrah's Entertainment
I have never been more intrigued by the prospects of Harrah's Entertainment, for several reasons.

First, the interest in Aztar by regional casino operators Ameristar Casinos (NASDAQ:ASCA) and Pinnacle Entertainment highlights the value of Harrah's Vegas Strip properties to the company's regional assets, and vice versa -- particularly when combined with Harrah's Total Rewards program.

In the past few months, Harrah's expanded its Total Rewards program to include properties acquired from both Horseshoe Gaming and Caesars Entertainment. Now, gamblers can use comp points interchangeably at nearly every Harrah's-owned property the U.S., except the Strip's Imperial Palace.

The ability to use your comps at Harrah's Strip properties is extra incentive to visit your local Harrah's, as opposed to a competitor. In addition, a gambler who regularly visits Caesars Indiana, for example, also has extra incentive to play at Harrah's when he visits St. Louis or Kansas City, or the Horseshoe in Chicagoland or Tunica. Indeed, Harrah's saw same-store sales climb 10.8% while cross-market play increased 17.5% in the first quarter. That trend should continue, particularly with the Horseshoe and Caesars properties now under the Total Rewards umbrella. The increased reach of the Total Rewards program should prove a nice added value to Harrah's investment in Caesar's properties, along with the fruits of more efficient management and capital investment.

In addition, Harrah's recent acquisitions have created outstanding organic growth opportunities across its network. Harrah's is currently working on a $550 million expansion at its Harrah's-branded property in Atlantic City and has big plans in the works for Biloxi's Grand Casino, which was destroyed by Hurricane Katrina. But in addition, the company recently announced a $480 million capital plan to replace the first-generation boat at Horseshoe Hammond (on the Indiana side of Chicagoland) with a larger facility. This summer, Harrah's is also expected to announce redevelopments for Caesars' center Boardwalk properties in Atlantic City, plus a master plan for the Strip.

On top of that, Harrah's also has a racetrack in Pennsylvania primed for the addition of slots, as well as several international opportunities.

Lastly, I'm excited about the World Series of Poker brand. Just a couple of years ago, Harrah's was strictly a slot player's brand. Today, Harrah's has its own poker tournament circuit in the WSOP Circuit, as well as the World Series of Poker, the biggest tournament series in poker. The WSOP brand also lends instant credibility to every poker room the company has opened. Last month, Harrah's held a weeklong grand-opening celebration for an expanded and relocated poker room at its St. Louis property, and it brought out WSOP Main Event champions Greg Raymer and Chris Moneymaker.

While you still have to go to the Ameristar casino in St. Louis to play both Omaha Hi/Lo and Pot-Limit Omaha, the new $30/$60 limit Hold 'Em game that is now spread at Harrah's on the weekends is now the biggest limit game in town. That can only improve Harrah's brand. And at least for the month of April, Harrah's has taken the market share lead from Ameristar in St. Louis.

Investing for value
Keep in mind that even though the casino industry is a growth industry, you should always invest for value. I wouldn't mind owning all four of the big Strip operators mentioned above -- but only at the right price. In particular, I think Harrah's is at or approaching full value. However, its combination of geographical diversity, Total Rewards program, and organic growth opportunities make Harrah's the casino operator for which I'd be most willing to ante up full value.

Ameristar is a Motley Fool Hidden Gems recommendation. Learn how to make smarter, better-informed bets on small-cap stocks with a free 30-day trial subscription.

Fool contributor Jeff Hwang owns shares of Ameristar Casinos. The Fool's disclosure policy is all in.