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Analysts Differ on Gaming Giant

31 May 1999

Equity and debt analysts offered differing outlooks for Park Place Entertainment Inc. of Las Vegas as the world's largest gaming company gears up for the September opening of its newest resort.

BancBoston Robertson Stephens equity analyst Harry Curtis reiterated his buy rating on Park Place stock and raised his earnings estimates for the company.

"We're increasing our 1999 per-share earnings estimates to 55 cents from 52 and our 2000 estimates to 70 cents from 65 cents," he said.

"We believe business trends at Park Place's properties are tracking ahead of our estimates, particularly in Las Vegas and Mississippi, which account for about 60 percent of estimated 1999 cash flow of $733 million," Curtis said.

He raised his estimate for the company's 2000 cash flow to $1.26 billion from $1.23 billion.

Meanwhile, Moody's Investors Service confirmed its existing rating on Park Place, while Duff & Phelps Credit Rating Co. (DCR) downgraded its rating on the company's long-term debt.

DCR said it believes that while the pending Park Place acquisition of Caesars World "possesses compelling strategic benefits, the $3 billion debt-financed purchase price represents larger than anticipated financial leverage."

"A large and highly diversified asset base, low capital costs and good financial flexibility support the (new) rating," DCR said. "Offsetting factors include near-term threats of gaming oversupply on the Las Vegas Strip and the Mississippi Gulf Coast."

Moody's said it expects Park Place will "digest the Caesars acquisition and reduce the related debt before embarking on other significant acquisitions or projects."

Moody's also said the opening of the Paris-Las Vegas hotel-casino this fall and increased visitation in Las Vegas should benefit Park Place

In another development, Park Place puts and calls were the most actively traded options on the Chicago Board of Options Exchange Thursday. A CBOE trader who asked not to be identified said the activity represented an options straddle by a big investor who appears to believe Park Place stock is heading higher, but wants to hedge the bet.

The investor sold 8,030 Park Place June $10 calls, each of which gives the call purchaser the right to buy Park Place common by the third Friday in June for $10 a share. Park Place stock was trading at $10.375 a share at midday today.

Simultaneously, the investor sold 8,030 Park Place June $10 puts, each of which allows the investor to sell Park Place common at $10 a share. Each put or call contract is for 100 shares, so the activity represented the rights to buy or sell 803,000 shares of common stock.

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