Harrah's Monopoly Win

Worthwhile Real Estate
The four-way bidding war for casino owner Aztar may prove a bonanza for Harrah's Entertainment (HET ) (HET), a top gambling outfit since it bought Caesars Entertainment last June. Analysts say the scramble for Aztar, owner of a 34-acre site on the Las Vegas strip, reflects spiraling land values in Vegas, which they now put at $20 million to $30 million an acre. Harrah's is not a bidder for Aztar, but it has lots of undeveloped Vegas real estate. That property is now worth $5 to $10 per share, figures Joseph Greff of Bear Stearns (BSC ), who rates the stock "outperform." Apart from seven properties on or near the Strip, Harrah's owns a further 440 acres in Vegas, a quarter of them undeveloped, he notes. Harrah's casinos, mainly in Vegas and Atlantic City, have had double-digit revenue jumps in the past year, notes Greff. The company owns or manages 40 casinos called Harrah's, Caesars, and Horseshoe. The Caesars unit hit its first-year "synergy target" in cost savings and revenues of $80 million ahead of schedule. That number is expected to rise to $180 million in the second year. So Greff lifted his 2006 earnings estimates from $3.74 a share to $3.93 and, for 2007, from $4.35 to $4.53. He expects the stock, now at 79.86, to hit 94 by yearend based on a sum-of-the-parts analysis. George Smith III of investment firm Davenport, who rates Harrah's a "strong buy," forecasts even higher earnings: $4.18 for 2006 and $4.65 for 2007.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial

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