Disappointing second-quarter results from casino operator Harrah's Entertainment (NYSE:HET) and disappointing guidance from regional player Penn National Gaming (NASDAQ:PENN) weighed on the entire gaming sector Thursday. Penn National COO Kevin DeSanctis' announcement that he will be leaving the firm by the end of the year to form a new business didn't help, either.

Harrah's saw its already beaten-down stock fall over 5% to close at $60.36, while Penn shares received a bigger correction, dropping 11.5% to $32.06. Even shares of Motley Fool Hidden Gems selection Ameristar Casinos (NASDAQ:ASCA) -- which were up early in the day after posting 33% better-than-expected second-quarter earnings Wednesday afternoon -- finished down 4%.

The result is that some arguably cheap stocks just got cheaper.

Harrah's misses on development expense
For the second quarter, Harrah's saw revenue jump 67% to $2.4 billion and property-level EBITDA climb 70% to $673 million, mostly due to addition of the properties gained in last year's acquisition of Caesars Entertainment. However, while adjusted earnings increased 10% to $0.95 per share, an increase in developmental expense to $18 million from $7 million last year (roughly a $0.06 per share difference) helped cause earnings to fall short of the $1.02 per share analyst estimate. The increase was related to the company's pursuit of additional development opportunities, including Rhode Island, the Bahamas, Spain, Slovenia, and Singapore, as well as the master planning activities for the Las Vegas Strip and Atlantic City markets. The company expects development spending to continue at that level for the remainder of the year.

Same-store sales at properties that Harrah's has owned for over 12 months were up 5%, while cross-market was up 13%. In the Las Vegas Region, Harrah's legacy properties saw a 3.6% gain in revenues, but a 0.7% decline in EBITDA as more players under Harrah's Total Rewards program -- which now allows Harrah's patrons from around the country to use their comps at Caesars Strip properties -- visited the Caesars properties on the Strip. Through the first full year of operations, Harrah's has recorded $118 million in synergies.

Elsewhere, Harrah's saw nice gains in Iowa and Missouri, thanks primarily to the opening of the re-branded Horseshoe Casino in Council Bluffs in March. The company also benefited from improved business at its St. Louis property. In the Louisiana/Mississippi Region, Harrah's four pre-Caesars properties -- including Harrah's New Orleans, Horseshoe Tunica, and Horseshoe Bossier City -- saw property EBITDA climb a healthy 21.7% on a 3.7% increase in revenues. Despite a 2.2% increase in revenues at Harrah's previous Illinois/Indiana properties (excluding Caesars Indiana), EBITDA slipped by 3.2%, because of new taxes assessed on the four Chicagoland casinos in Illinois (effective May 26), as well as road construction disruption near Horseshoe Hammond on the Indiana side.

Penn National guides short; COO moves on
Penn National, on the other hand, posted second-quarter earnings of $0.49 per share, besting the $0.47 per share analyst estimate. Overall, the inclusion of five riverboats acquired in the October 2005 acquisition of Argosy Gaming helped revenues climb 81.6% to $537.8 million, while EBITDA nearly doubled to $155.1 million.

However, the company's earnings outlook apparently was a major disappointment. After beating earnings estimates by $0.02 per share, the company merely raised its full year outlook by those same $0.02; the company now sees full-year diluted earnings per share from continuing operations of $1.84 per share, rather than $1.82. The issue is that this is still well short of the analyst estimate calling for earnings of $2.02 per share for the year.

Guidance aside, property performance was bright. The four biggest of the Argosy casinos all posted healthy revenue and EBITDA gains. The company also saw same-store EBITDA gains at five of the six other Penn National casinos.

But like Harrah's, Penn National was also hurt by the new taxes in Illinois, which assess an additional 3% tax on Harrah's Joliet, MGM Mirage's (NYSE:MGM) 50%-owned Grand Victoria Elgin, and the Hollywood Aurora and Empress Joliet -- both of which are owned by Penn National (Penn is required by the Illinois Gaming Board to reach a definitive sales agreement for the Empress Joliet by June 30, 2008). The tax will impact earnings by $0.05 per share for the second half of 2006.

On the development front, Penn National re-opened the Boomtown Biloxi along the Mississippi Gulf Coast late in the second quarter, with 1,100 slots and 22 table games; in September, the property will see a pier-based expansion with 400 additional slot machines and a full service restaurant. The Casino Magic Bay St. Louis will also re-open this fall as the Hollywood Casino Bay St. Louis. The property will have 20 table games and 850 slot machines, with room to expand to 1,270 slots.

Penn also announced that it has expanded the scope of the expansion project at Argosy Casino Lawrenceburg to include 400 additional gaming positions, including a 30-table poker room. The cost of the two-level gaming barge is now estimated to be 17% higher at $310 million, also reflecting higher construction and materials costs. Also, as the company expects Category 1 slot licenses to be issued by the Pennsylvania Gaming Control Board (PGCB) by the end of September, the company announced that it will begin construction of the Hollywood Casino at the Penn National Race Course in August. The estimated cost of that project has also increased 18% to $310 million, reflecting higher construction costs in the two years since the initial plans for the casino were conceived.

The last item worthy of mention is that the company announced that COO Kevin DeSanctis intends to leave the company by the end of 2006 to form his own company, Revel Entertainment.

A time to buy?
Through the first big week of casino earnings for the second quarter, I think this is the first time in long while where nobody in the industry has put up that perfect report. Everybody has had some blemish, either missing earnings for the quarter, or disappointing on guidance. Even Ameristar beating estimates by $0.08 per share wasn't perfect; this is the first quarter since I've been following the company that Ameristar didn't hold the market share lead in Council Bluffs, and it might even be the first time since the August 2002 opening of the new gaming barge in St. Louis that the company was in second place to Harrah's for all three months of a quarter (I'll have to go back and check).

All of a sudden, the casino operators have become a lot easier to pick on, and this has shown up in the rapidly deflating stock prices. What this means, of course, is that this is precisely the time that the enterprising investor looks for opportunities.

At this point, I think Ameristar is a good candidate for a buy. I think a case can be made for Station Casinos (NYSE:STN), and my colleague Nathan Slaughter likesBoyd Gaming (NYSE:BYD). And now Penn National -- whose stock has held up fairly well up until this point -- has finally taken a real hit to the stock price. I've never really seriously considered Penn myself, but maybe there is an opportunity brewing there as well.

And then there's Harrah's, easily the most geographically diverse and probably the safest bet in the game. At $60 a pop, the stock sports a relatively juicy (compared to the rest of the industry) 2.5% dividend yield. I think, factoring in a full year of operations in New Orleans and the Gulf Coast, the company is trading at about 8.5 to 9.0 times EBITDA, which is much more reasonable than it looks, as the EBITDA figure also understates the long-term value of the Las Vegas Strip and Atlantic City assets.

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Fool contributor Jeff Hwang owns shares of Ameristar Casinos. The Fool has an ironclad disclosure policy.