Analyst upgrades Park Place, lowers Mandalay

Thursday, May 31, 2001 | 10:45 a.m.

CS First Boston today upgraded its rating on Park Place Entertainment Corp. of Las Vegas, saying the company's business fundamentals have improved and that its stock trades at a significant discount to other casino operators.

At the same time, CS First Boston gaming analyst Brian Egger downgraded Mandalay Resort Group, saying the company's outlook leaves little room for improvement in the company's short-term stock price.

Egger raised Park Place from "hold" to "buy," and raised his 12-month target price from $12 to $16, a 30 percent premium over current trading levels. Park Place stock rose 52 cents to $12.33 by midday today.

Egger cited four reasons for his upgrade -- the company's acquisition of the Claridge in Atlantic City and opportunities for expansion there; the pending expansion project at Caesars Palace in Las Vegas; low market expectations for earnings growth built into Park Place's stock price and Park Place's relatively low valuation compared to other gaming operators.

"While we believe that the equity market ascribes little to no discrete value to (Park Place's) Caesars Las Vegas expansion ... we view as strategically and competitively important the modernization of the amenities at Caesars Palace," Egger wrote.

Mandalay, meanwhile, was lowered from "buy" to "hold." Egger said the stock now trades close to his $26 price objective, and that the outlook for the short-term doesn't warrant a higher target price. The stock is up 25 percent this year.

"A seasonally more opportune time to buy (Mandalay) may re-emerge this autumn," Egger wrote. "In the interim, we would favor Harrah's Entertainment and Park Place Entertainment."

Despite the downgrade, Mandalay rose 12 cents this morning to $25.12.

Separately, CIBC World Markets raised its price targets and earnings estimates on three slot manufacturers: International Game Technology, Alliance Gaming and Anchor Gaming.

CIBC gaming analyst William Schmitt raised the IGT price target from $61 to $70, and his 2001 earnings estimate from $2.66 to $2.72. He cited the company's strong growth prospects in its participation games division, "solid fundamentals in product sales" and continuing debt reduction efforts.

Schmitt also increased Alliance's price target from $26 to $31, citing upward revisions in earnings estimates and a reliance on 2002 earnings estimates, as opposed to 2001 earnings estimates. Schmitt raised Anchor's target from $66 to $75 for similar reasons, also citing expected contributions from Anchor's Pala Casino near San Diego and expected strength from Anchor's slot machine lines.