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Analysts: Casinos a Better Bet than Hotels

22 October 2002

SAN FRANCISCO, California – As reported by Reuters: "Slow business travel has cast a pall over many hotel companies reporting quarterly earnings this week, but financial analysts are gambling that casinos will again prove the ability to withstand tough times.

"UBS Warburg on Monday set the tone for the week ahead by cutting stock price targets for nine of the 10 hotel companies it follows.

"The investment firm forecast average room revenue would fall 2 percent in 2003 while management expenses rose as companies continue cutting travel budgets to lower their own expenses in the currently weak economy.

"Hotels were behind target in October, typically one of the best business travel months, UBS Warburg analyst Keith Mills said, predicting many hoteliers would give glum forecasts with this quarter's earnings reports.

"…Meanwhile, casino operators have begun the earnings season with a whimper, but analysts expect more of a bang this week.

"Park Place Entertainment (PPE), Argosy Gaming Co.(AGY) and Ameristar Casinos Inc.(ASCA) have all reported preliminary or final results that missed Wall Street forecasts, but each claimed unique problems, such as construction at Park Place's Caesars Palace, which drove away gamblers.

"Harrah's Entertainment Inc.(HET) may see a small upside thanks to Atlantic City and Las Vegas, and MGM Mirage (MGG) may show strength in Las Vegas where it has managed room rates well, said Fulcrum Global Partners analyst Joe Greff.

"…Harrah's on Tuesday is expected to post profit of 88 cents a share on $1.15 billion revenue. MGM Mirage on Wednesday is seen with a 47 cent per share profit on $1.02 billion in revenue, and Mandalay Resort Group (MBG) on Nov. 2 is forecast to report 53 cents a share on $638 million revenue, First Call said.

"Lehman Brothers analyst Joyce Minor said casino operators had revived early in the year faster than expected. While she would be watching for comment on the different markets, she did not expect major revisions…"

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