MGM MIRAGE rating raised

Friday, Dec. 7, 2001 | 11:10 a.m.

Lehman Bros. gaming analyst Joyce Minor on Thursday raised her rating on MGM MIRAGE and downgraded Park Place Entertainment Corp., following meetings with executives at the two Las Vegas companies earlier this week.

Minor raised MGM MIRAGE from "market perform" to "buy," and set a $33 price target for the stock. Park Place was reduced from "strong buy" to "buy," and its target was lowered from $14 to $10.

Minor raised her 2002 earnings estimate for MGM MIRAGE from $1.09 to $1.27 per share, and estimated 2002 cash flow would decline 1.4 percent to $1.1 billion, then rise 11 percent to $1.22 billion in 2003.

"We have long admired (MGM MIRAGE's) best in the class assets and margins, and view the weakness (in the stock) relative to the market as a buying opportunity," Minor wrote. "It sounds to us like MGM MIRAGE is seeking solid progress against cost savings targets, and we expect an improvement in (the fourth quarter of 2001)."

MGM MIRAGE posted a third-quarter loss, after one-time charges, of $14.4 million, or 9 cents a share.

In her downgrade of Park Place, Minor actually increased her earnings estimates. Her 2002 earnings estimate rose from 28 cents to 35 cents, partly because interest expenses are expected to be lower.

"In general, we are upbeat on the gaming stocks as we expect that gradually improving travel trends will allow the recent upswing in the stocks to continue," Minor wrote. "Nothing in our meeting with Park Place or others we met in Las Vegas contradicted this view. However, we are a bit less enthusiastic about Park Place than our recent Strong Buy rating would suggest."

Minor cited concerns over the company's "somewhat disappointing results" even prior to Sept. 11.

"While we had hoped that Park Place's diversity would be a benefit to earnings, many areas outside of Las Vegas have also been weak and/or inconsistent," Minor wrote. "We would look to become more positive when we see more consistent earnings results."

MGM MIRAGE rose 85 cents Thursday to $28.05; Park Place was up 8 cents to $8.77.