Analyst downgrades stocks

Monday, Nov. 4, 2002 | 11:05 a.m.

Merrill Lynch casino industry analyst David Anders last week downgraded shares of Las Vegas Strip operators Mandalay Resort Group and Park Place Entertainment Corp. from "buy" to "neutral" in part because of competitive concerns and weak consumer confidence figures.

A more competitive operating environment in Las Vegas -- especially at the lower end of the market -- weakening revenues at the company's Illinois casino, continued weakness in Reno and declining consumer confidence prompted the downgrade of Mandalay Resort Group, Anders wrote in a research note.

These negatives are offset by the fact that the company "generates significant free cash flow with which to buy back additional stock or pay down debt" and that the company's new convention center and hotel tower at its Mandalay Bay resort should help fuel earnings growth in the long term, he wrote.

Park Place also faces increased competition at the lower end of the market and weakened consumer confidence during a seasonally weak period for Las Vegas, Anders said. In Atlantic City, which accounts for 35 percent of the company's cash flow, "additional capital expenditures may be required" to maintain its properties in the face of increased competition.

The company's Colosseum venue and Forum Shops mall expansion at Caesars Palace, as well as the launch of dockside gambling in Indiana are among the positive factors offsetting these concerns, Anders wrote.