Analyst rates Park Place Entertainment 'top pick'
Brian Egger, Donaldson, Lufkin & Jenrette
BRIAN EGGER is Vice President in the Equities Research Department of Donaldson, Lufkin & Jenrette
Tell a Friend!
TWST: I'd like to start with a review of the performance of the gaming industry over the past six to 12 months. Brian, what stands out as you look back at the performance of the companies and the stocks?
Mr. Egger: There's no question that Las Vegas underwent a big resurgence last year that has continued into this year, although perhaps not at quite as robust a pace. Overall business conditions are quite strong. Although gaming operators confront challenging first quarter earnings comparisons, reported profit results have been quite strong. In the last 12 months, against a backdrop of 10% Las Vegas room supply growth, we have observed very solid 10%-15% gains in all the major demand metrics that we track, including Las Vegas visitor volume, air passenger arrivals and gaming revenues. I would also note that with respect to the principal midwestern riverboat jurisdictions, the benefit of regulatory relief has driven revenue results higher. We've observed very solid gaming revenue gains in the major riverboat jurisdictions, including Missouri and Illinois. In conclusion, I would note that we are also anticipating very stable and more rational room supply conditions going forward, which puts demand and supply into quite a healthy balance for the foreseeable future.
TWST: Brian, what is your top pick?
Mr. Egger: Our top pick in the sector has been and remains Park Place Entertainment (NYSE:PPE). The stock's potential percentage upside is rather impressive. The stock has been a laggard despite really strong fundamentals, free cash flow and some long-term development opportunities that should be quite interesting.
Park Place Entertainment has been a laggard and has more dramatic upside potential relative to the other names we have discussed, which have rallied during the last several weeks.
TWST: Is there a compelling reason to buy Park Place today?
Mr. Egger: While it is somewhat more difficult this year than last year to identify traditional catalysts, Park Place may be successful in acquiring the Atlantic City Sands property out of bankruptcy. Moreover, the Paris Las Vegas resort continues to generate above-average returns on capital, and we think the Caesars acquisition will prove to be more accretive to earnings than the Street is expecting. We think those considerations will serve as drivers to move the stock higher. |
