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Analyst Flips Mandalay, Park Place Ratings

27 October 1999

A veteran gaming analyst shuffled his ratings on the stock of two big Las Vegas-based gaming companies Tuesday, upgrading Mandalay Resort Group and downgrading Park Place Entertainment.

Mandalay stock closed at $18 a share, up 43.75 cents, while Park Place was off 25 cents a share from its 52-week high, at $13.50.

Credit Suisse First Boston analyst David Anders trimmed his rating on Park Place to "buy" from "strong buy," though he raised his price target for the company's stock to $16.50 a share from $15.

Anders took the opposite tack with Mandalay, raising his rating to "strong buy" from buy, with a target price of $32 a share.

Anders noted that on Monday, Park Place reported higher third-quarter earnings and cash flow and said he was raising his estimate of the company's per-share earnings for 2000 to 67 cents from 62.

"Although we still view the Park Place story very favorably and believe there is upside appreciation potential of 20 percent, we are lowering our rating because we believe much of the good news about the opening of Paris Las Vegas has already been incorporated in the stock price," he said.

In addition, Anders noted that Park Place said Monday that Caesars Palace is "performing below expectations, as the property is still too dependent on high-end visitors from the Far East and has not effectively used the Forum Shops to stimulate increase visitation."

Finally, Anders said Park Place has indicated it plans to spend about $195 million on renovations at Caesars properties in Las Vegas, Atlantic City and Indiana next year, and may build additional hotel towers at its Tunica and Biloxi resorts. Analysts had expected Park Place capital spending to slow significantly.

Anders said Mandalay Resort Group is focused on generating free cash flow with construction of Mandalay Bay complete. The company's stock is trading at an "extremely compelling" level, with various financial multiples significantly below those of large-cap competitors such as Park Place, Mirage Resorts, MGM Grand and Harrah's Entertainment, he said.

Mandalay Resort Group, which has about 19,000 rooms in Southern Nevada, should benefit from robust visitation trends to Las Vegas and the lack of new property openings for at least three years, Anders said. In addition, the company's 45 percent-owned temporary casino is expected to open soon in Detroit, a market "much deeper than we initially anticipated," he said.

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