Harrah's Gets Vote of Confidence

Harrah's(HET) shares received a small boost Wednesday after one analyst said the casino operator's fundamentals remain intact despite recent investor concerns.

Harrah's stock has been under pressure of late due to worries about second-quarter earnings and fears of an overall gaming industry slowdown in the second half of the year, wrote Morgan Stanley analyst Celeste Mellet Brown in a research note Wednesday. Concerns about Harrah's capital expenditure plans also have weighed on the stock.

Brown, however, believes that all three issues are overblown.

After reaching a 52-week high of $83.33 on May 10, Harrah's shares have declined almost 20%. The stock rose 68 cents, or 1%, to $67.51 in afternoon trading Wednesday.

Brown expects Harrah's to meet her 99-cent EPS target, and possibly beat the number, when it reports second-quarter earnings later this month. Analysts have an average estimate for earnings of $1.02 a share.

There also has been some worry of an overall gaming slowdown in the second half of this year, as Vegas and other regions might be showing signs of weakness.

"Consumer confidence declines have had no apparent impact on gaming spend in regional markets," Brown wrote. "While Las Vegas could be a larger risk when combined with tough comps, we believe Harrah's can outperform averages as the Caesars properties continue to benefit from better management and Total Rewards is utilized."

This fall, Harrah's will announce its capital expenditure plans for its Vegas and Atlantic City, N.J., casinos. Some investors have worried about the spending, but the issue is overblown, Brown says. "The capex will be spent slowly, and Harrah's will have the ability to accelerate or delay projects in its pipeline in response to demand and market conditions," she wrote.

Brown, in her report, lowered her third-quarter EPS estimate on Harrah's by 4 cents to $1.10 to reflect lost revenue from the temporary shutdown of Atlantic City casinos last week.

She also maintained her overweight rating on the stock, with a year-end 2007 price target of $91. Morgan Stanley provides investment banking services to Harrah's.

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