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Howard Stutz

Gambling Stocks Buoyed by Upbeat Forecast From Caesars

19 January 2005

An announcement early Tuesday by Caesars Entertainment that the company expects its fourth-quarter earnings to be better than previous estimates sent gaming-sector stock prices upward by the close of trading.

The news propelled analysts to issue statements that strong earnings could be revealed by much of the industry as company quarterly financial reports are announced over the next few weeks.

Caesars raised its outlook for the quarter in a brief statement before the markets opened, saying it expected the company to earn a range of 7 cents to 9 cents a share, up from its previously forecast range of 4 cents to 6 cents a share.

For 2004, the company, which operates Caesars Place, Bally's, Paris Las Vegas, Flamingo and 21 other properties worldwide, said it expects earnings to be in a range of 67 cents to 69 cents a share.

Caesars, which will announce earnings Feb. 10, attributed the improvement to better-than-expected results in Atlantic City and Las Vegas. Analysts polled by Thomson First Call had been expecting earnings of 7 cents a share, on average, for the fourth quarter and 71 cents a share for the year.

While the price of Caesars stock climbed 32 cents to close at $19.95, up 1.63 percent, other gaming companies watched their stock price climb with an even larger significance. Harrah's Entertainment, which has a pending deal to purchase Caesars for $9.4 billion, had its stock price rise 99 cents to close at $65.98, up 1.52 percent.

The day's largest money increase belonged to Wynn Resorts Ltd., which jumped $2.55 to close at $67.99, up 3.9 percent. MGM Mirage jumped $2.53 to close at $76.30, up 3.43 percent. Las Vegas Sands Corp., operator of The Venetian, had the biggest percentage increase, 4.17 percent, closing at $45.21, up $1.81.

The Bloomberg Las Vegas Index, a price-weighted list of companies with operations in the region, rose 5.50 to 349.81.

Analysts deemed the Caesars news as good for the industry as a whole, saying strong results from New Year's helped companies with properties in both Las Vegas and Atlantic City.

"Caesars' positive announcement does not come as a complete surprise," Deutsche Bank analyst Marc Falcone said. "Based on our New Year's observations, room rate surveys, and meetings with property and company management, we had anticipated that both Las Vegas and Atlantic City experienced a particularly strong New Year's Eve holiday celebration. We believe this announcement bodes well for other gaming operators."

Bear, Stearns & Co. analyst Joe Greff said the announcement was welcome news in Atlantic City.

"Although we view Atlantic City's growth prospects less favorably than Las Vegas, we believe the fourth-quarter upside is positive and welcome news to operators in the market, most notably Harrah's," Greff said. "Given the recent fall strike and the looming opening of Pennsylvania slot parlors, we are looking for 3 percent to 5 percent top-line growth in 2005 given the anniversary of the Borgata and the opening of the Tropicana expansion."

Other local gaming stocks climbing on the Caesars news were Station Casinos, up $1.62 to $57.05, a 2.89 percent increase; Boyd Gaming Corp., up 64 cents to $39.63, a 1.64 percent increase; and Riviera Holdings Corp., up $1.15 to $41.60, a 2.84 percent increase.