Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Non-Tech : SPIN-OFFS "secret hiding places of stock market profits" -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (288)	1/10/1999 7:33:00 PM
From: Stewart Whitman	Read Replies (1) \| Respond to of 1185

Paul, I looked at Park Place in some depth. The company actually seems like it will be a lot stronger after the merger with Grand Casinos. The companies looks like they are a good fit, especially in terms of geographic diversification. The spin-off will give the new company more financial flexibility - both for financing and acquisitions. It seems to me that the separation and merger made a lot of sense and it was a good decision by management. However, the whole gaming industry is out of favor. When I compare PPE to Harrah's Entertainment (HET) and Circus Circus (CIR), PPE seems to be trading at a discount in terms of P/E, a premium in terms of P/S, and about par in terms of cash flow. Looking back at the two other stocks, it seems that margins have been under pressure for 2-3 years, and, by most financial measures, performance has not been outstanding. I've read that this is due to increased competition in Las Vegas. PPE has a new project coming online in Las Vegas at the end of this year. I must admit that trying to judge these huge theme-type casinos is much beyond me - somewhat like fashion or theme restaurants - too subjective. The amount of money these companies spend to build these casinos is just incredible. All these gaming companies operate with a huge amount of leverage. But, they seem to be reliable cash flow businesses. The sector doesn't look so bad - when things are good, ROE is in the high teens, profit margins are 8% or higher. Some of the interesting statistics that I noted from the company's 10K's: they're all operating with negative free cash flow - capital expenditures > operating cash flow, casino cash flow for HET has increased at a 6.5% rate over the past 5 years or so, casino revenue have declined slightly at CIR over the past 3 years, and the drinks are almost free! In summary, PPE looks like a good company with a promising future. The restructuring should help in the future. The stock doesn't look to be trading at a significant discount to the sector to me. I am following the stock and would probably jump in on a significant decline (say $5). That might be asking too much, considering how beaten down the sector already is. I am hoping for some type of spin-off effect. I looked at Hilton briefly but there wasn't anything that really caught my eye. There is the name, of course. Regards, Stew