Lehman analyst is optimistic about Harrah’s, Park Place

Friday, June 9, 2000 | 10:55 a.m.

Lehman Bros. gaming analyst Stuart Linde raised earnings estimates for Harrah's Entertainment Inc., calling the stock "the best risk reward in gaming."

Following meetings with Harrah's senior management, Linde raised his second quarter earnings estimate from 40 cents to 43 cents per share, and his 2000 estimate from $1.62 to $1.65. Linde also raised his 2001 estimate from $2.00 per share to $2.08.

"We feel that the company is poised to outperform the sector and the market in the second half of 2000 as many of the negatives dissipate," Linde wrote. "Many of the negatives are baked into the stock price ... this inefficiency creates an excellent opportunity for investors."

Investors should expect a lowering of Harrah's $100 million annual tax burden in New Orleans, a turnaround of the Rio and profits from National Airlines in the near future, Linde said.

Linde maintained a buy rating on Harrah's, and kept his target price at $35, a 63 percent premium over the stock's current price of $21.44.

In a separate report, Linde said he believes there is "upside" to his second quarter earnings estimate of 18 cents per share for Park Place Entertainment, though he did not raise his earnings estimates. Linde cited "exceptionally strong" performance in Atlantic City and Las Vegas during the quarter.

Linde also noted that cost synergies from Park Place's acquisition of Caesars World Inc. will exceed $50 million, and could approach $70 million. Further, he said, there is potential for boosted earnings from Park Place's talks to build a casino in the Catskills region of New York State.

"(Park Place's) valuation is among the most compelling in gaming at 6.1 times 2001 (cash flow)," Linde wrote. Linde's target price for Park Place is $20, a 66 percent premium over current prices.