Caesars Entertainment ( CZR) shares rose 6% on Wednesday after the company boosted first-quarter estimates, another sign that the red-hot casino sector could have more upside.

The gambling host said it expects first-quarter adjusted earnings to range between 17 and 19 cents a share, higher than previous guidance of 11 cents to 13 cents a share. The new forecast tops the consensus Wall Street estimate of 12 cents a share and is above the most optimistic analyst estimate.

Caesars said business trends across all its properties were stronger than expected. Through March 7, Caesars said room revenue in Las Vegas was higher than expectations, driven by higher rates, while the casino business was boasting strong volume and generating more revenue from gamblers.

Caesars shares rose 76 cents to $13.48.

Business in the gambling space appears to be picking up and so are stocks, gaining 13% this year, following a 61% gain last year. In reaction to the new guidance, a number of brokerages, including Morgan Stanley, J.P. Morgan and Prudential Equity Group raised estimates.

"Our prior estimate was based on a 3% companywide revenue growth rate," said William Lerner, analyst at Prudential. "This morning's announcement has prompted us to increase our expectations to growth of 7%."

It appears that Wall Street may be low-balling the industry's revenue recovery. Last Thursday morning, J.P. Morgan raised estimates on the entire casino group, telling investors that recent call-in surveys suggest that revenue per available room, a key metric called "revpar," could grow by as much as 11%.

Mandalay Resort Group ( MBG) confirmed this thesis later Thursday, announcing that fourth-quarter revpar at Las Vegas Strip properties rose 22% year-over-year, announcing adjusted earnings that topped Wall Street estimates by 4 cents a share.

"I think some of the upside is largely reflected in stock prices now. Last week, Mandalay's numbers came up," said Eric Hausler, gaming analyst at Susquehanna Financial Group. " MGM Mirage ( MGG) probably has some upside relative to where numbers are. And Caesars cited a strong hold. I think you'll see other people preannounce first-quarter earnings to the upside. Expectations will come up."

This is a reversal from the first three months of 2003, which were a rocky time for the casino industry, with Mandalay and MGM Mirage issuing a pair of negative preannouncements in late January 2003. First-quarter results were further weakened by a President's Day weekend blizzard that blanketed the Northeast, terrorism fears and reduced travel demand due to the approach of hostilities in Iraq.

"You're seeing a revpar recovery and strong casino volumes," said Hausler. "And there are easy comparisons, because there was terrible weather across the country in February of last year."

Still, concerns about valuation persist. On Tuesday, Morgan Stanley downgraded Caesars to equal-weight from overweight, telling investors that the company would be trading at 22 times estimated 2005 earnings based on current share prices, which is more than the group's average multiple of 20 and the S&P's multiple of 18.

But as the preannouncement from Caesars indicates, rising estimates may offset valuation concerns.

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