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Mandalay Resorts Upgraded

CSFB says the casino and hotel operator looks attractive again after about a 20% slide.
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A month ago,

Mandalay Resort Group


seemed pricey, trading at 52-week highs, but after sliding nearly 20%, the company's shares may be cheap again.

Credit Suisse First Boston analyst Scott Barry upgraded Mandalay to outperform from neutral on Monday morning, telling investors that the stock was oversold, citing strong fundamentals in the company's core Las Vegas operation.

Recently, shares of the casino operator slipped 14 cents, or 0.3%, to $51.03.

"Mandalay has significant exposure to white-hot Las Vegas fundamentals, with 76% of fiscal 2005 earnings before interest, taxation, depreciation and amortization from the Las Vegas Strip, particularly room-rate pricing power," said Barry in his upgrade. (CSFB does and seeks to do business with the companies it covers in research reports.)

One big factor in Mandalay's ability to raise room rates is the company's exposure to the convention market, where consumers are more willing to pay a premium to attend meetings. Over the last several years, the company has spent $1.3 billion upgrading its flagship Mandalay Bay property, adding a convention center and a new hotel room tower.

Many casino investors grew skittish on the sector after operators didn't boost forward-looking guidance when they released first-quarter earnings, and with easy first-half comparisons due to the war in Iraq, many on Wall Street fear that results won't get much better for the rest of the year and are looking for value outside the sector. (

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Click here for more on sector rotation out of casino shares.)

Since April 20, the day before

MGM Mirage



Harrah's Entertainment


released earnings, the Dow Jones Casino Index has dropped 14.2%. But Mandalay, whose fiscal calendar is different than rivals, has yet to discuss its view for the rest of the year -- the company announces quarterly results on June 3.

According to CSFB research, Mandalay is well positioned with 18,500 rooms on the Strip, accounting for 28% of the hotel room inventory. And with Las Vegas results going strong, Barry raised his fiscal 2005 and 2006 earnings estimates on the company, telling investors that the stock's slide makes valuations seem compelling.

"While gaming operator concerns, including sustainability and rotational risk, remain, sentiment is now more mixed and rate- and oil-related issues appear overblown," said Barry. "Given Mandalay's exposure to scalding Vegas fundamentals and its operating and financial leverage, the equity appears poised to rally."