Mirage, Hilton downgraded

Gary Thompson

Tuesday, Nov. 10, 1998 | 11:39 a.m.

The specter of a room-rate war in Las Vegas has prompted two prominent investment banking firms to downgrade their ratings on the stocks of Mirage Resorts Inc. and Hilton Hotels Corp.

The shares of Mirage and Hilton fell in late-morning trading after BancBoston Robertson Stephens and Goldman Sachs & Co. cut ratings. Mirage was off $1.1875 to $17.50 in heavy trading, while Hilton slipped 25 cents to $20.125.

Goldman Sachs downgraded Mirage to "market outperform" from "trading buy," while BancBoston cut Mirage and Hilton to "market perform" from "buy."

"The original intent of (Mirage Resorts') Bellagio was to create incremental visitor growth at the high end," BancBoston's Harry Curtis said today. "But it appears that Bellagio is targeting customers of other Strip hotels to fill its rooms.

"With Bellagio's first 20-day occupancy at 88 percent, we do not believe that the property is stimulating incremental demand equal to or greater than the supply it created.

"In our opinion, the fact that Bellagio is playing a market-share game versus a market-expansion game early in its existence has negative demand implications for Las Vegas, particularly with three new casino/hotels opening in 1999.

"This change in strategy strongly suggests that risks for casino stocks, including Mirage and Hilton -- two of the best casino developers, in our view -- are increasing," Curtis said.

Mirage Vice President Alan Feldman disputed the argument that Bellagio isn't stimulating new demand.

"We do our best always to explain and clarify where we're at," Feldman said today. "It's obvious from the first 20 days of operation that Bellagio represents significant incremental new business."

On Monday, Mirage reported the average daily room rate at Bellagio was $188 for the first 20 days of operation. The company added that Bellagio's casino numbers and retail sales also were higher than expected.

Hilton Vice President Marc Grossman was traveling and couldn't be reached for comment.