JP Morgan analyst bullish on industry

Friday, April 12, 2002 | 11:10 a.m.

JP Morgan Securities initiated coverage of the gaming industry Thursday, issuing buy ratings on Harrah's Entertainment Inc., MGM MIRAGE, Park Place Entertainment Corp., Mandalay Resort Group and Station Casinos Inc.

JP Morgan's lead analyst in the sector is Harry Curtis, who formerly covered gaming for Robertson Stephens. Curtis also initiated coverage of International Game Technology at "long-term buy."

Curtis sounded an extremely bullish tone in his initial reports, predicting that the Las Vegas room rates could pull even with last year's levels by this month -- and that the Las Vegas operators could report cash flow growth as high as 6 percent in 2002.

"We believe that the (five) operators will continue to outperform the S&P 500 both on an absolute and relative basis," Curtis wrote. "We estimate free cash flow should accelerate over the next six quarters, and we believe share repurchases and debt reduction should contribute to 15-17 percent annual (earnings per share) growth.

"In an environment where the importance of clean accounting and cash earnings are paramount, the casino industry stands out like a beacon."

Other positives for the industry, Curtis said, included lower labor costs and demand outstripping supply across the gaming industry. The stocks could also benefit

Curtis was most aggressive on Mandalay, setting a 12-month target price of $43, 35 percent above current trading levels.

"Our recommendation of this company's stock is tied directly to our view that demand and pricing are not only normalizing, but will turn positive by summer 2002," Curtis wrote.

Curtis also predicted a 25 percent premium in MGM MIRAGE shares ($45), 22 percent for Harrah's ($55), 20 percent for Park Place ($14), 17 percent for IGT ($68) and 16 percent for Station ($21).