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Analyst Drops Stock Rating Of Two Key Gaming Firms

10 November 2000

by David Strow

LAS VEGAS, Nevada – Nov. 10, 2000 --Raising concerns that the Las Vegas gaming industry may finally be slowing down, a prominent gaming analyst today downgraded MGM MIRAGE and Harrah's Entertainment Inc., apparently contributing to selling activity in both stocks.

The downgrades, made by analyst Robin Farley of UBS Warburg, cited Thursday's report by the Nevada Gaming Control Board that gaming win fell nearly 4 percent in Nevada in September, and more than 9 percent on the Strip. It marked the first decline in 30 months.

"The question is whether September numbers are an anomaly or whether it's the beginning of a flatter trend in Las Vegas," Farley wrote. "A slowdown in visitor growth by itself is not unexpected. But unless visitor numbers can stay ahead of the growth in room inventory going forward, same-store cash flow growth across the board could be challenging.

"Investors may not be comfortable with two consecutive months of down comparisons. Therefore, October numbers must come in solidly to keep the stocks at current levels."

Farley downgraded MGM MIRAGE from buy to hold, cutting its 2001 earnings estimate to $2.00 from $2.11, and lowering its price target to $32. She also downgraded Harrah's from buy to hold, but maintained its earnings estimates and price target.

Farley left a buy rating on Park Place Entertainment Corp., saying it was not as exposed to the Strip as MGM MIRAGE and had cash to execute a "significant share buyback" in the next few months. She also maintained Mandalay Resort Group's hold rating.

MGM MIRAGE and Harrah's were hit this morning -- as of midday, MGM MIRAGE fell $1.88 to $30.06, a decline of nearly 6 percent. Harrah's was off $1.31, or 4.6 percent, to $27.19.

Mandalay and Park Place also fell, though not as severely -- Mandalay was off 38 cents to $19.31, a 2 percent decline, while Park Place dropped 13 cents to $12.31, a 1 percent fall.

The downgrade annoyed Jim Murren, MGM MIRAGE's president and chief financial officer.

"I spent 14 years on Wall Street, and I'd like to think I've seen everything," Murren, a former analyst, said this morning. "But to look at a data point that's 45 days old, without considering the full picture of what that datapoint meant, and to make some kind of forward-looking projection is absurd."

Murren argued that three of the four large Strip operators -- MGM MIRAGE, Park Place and Harrah's -- posted strong third quarters, while Mandalay said it had done well on the Strip.

"How could a September number that's that dusty mean anything?" Murren said. "The September numbers don't indicate anything."

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