Markets & Finance

S&P on Casino Stocks: Hold 'Em


From Standard & Poor's Equity Research

Harrah's (HET)

Boyd Gaming (HET)

MGM MIRAGE (MGM): Keeps 3 STARS (hold) on each

Analyst: Thomas Graves, CFA

We expect the closing of Atlantic City's casinos

because of a state budget impasse will negatively affect profits at such companies as Harrah's, Boyd, and MGM MIRAGE. However, for these three, excluding the impact of a shutdown, we estimate that less than 30% of

their 2006 earnings before interest, taxes, depreciation, and amortization (EBITDA) would have come from Atlantic City. Also, we do not

expect that the casino shutdowns will be lengthy enough or harmful enough to significantly undermine the longer-term growth prospects for these companies.

Duquesne Light Holdings (DQE) : Ups to 3 STARS (hold) from 2 STARS (sell)

Analyst: J. McCann, K. Leon-CPA

Duquesne Light Holdings agrees to be acquired at $20 per share cash by a consortium led by Macquarie Infrastructure Partners and Diversified Utility and Energy Trusts. Subject to necessary approvals, the parties expect the deal to close in the first quarter 2007. Prior to consummation, the Macquarie consortium will also invest $141 million in newly issued Duquesne Light Holdings equity in a private placement priced at $16. Duquesne Light Holdings plans to use the proceeds to assist in the financing of the planned acquisition of a minority interest in two generation stations. We are raising our 12-month target price by $5 to $20, reflecting the bid price.

Marvell Technology (MRVL) : Reiterates 1 STAR (strong sell)

Analyst: T.Smith-CFA, S.Kessler

In an 8-K filing this morning, Marvell Technology discloses the receipt of a letter of informal inquiry from the SEC and a grand jury subpoena, both related to its stock-option grants and practices. At the least, we think these matters could contribute to higher operating expenses and distract management. We also have concerns about the timing of the associated disclosures, especially in light of the recently announced pending purchase of a business from Intel. With a number of significant looming uncertainties, and a premium relative valuation, we continue to view Marvell Technology shares as unattractive.

Quest Software (QSFT) : Maintains 3 STARS (hold)

Analyst: Z.Bokhari,D.Cathers

After reviewing stock option grants for the period from the fall of 1999 and into 2002, Quest Software determines that non-cash stock-based compensation should have been recorded, and it intends to restate financial results from 2000 to 2005 and the first quarter of 2006. The company says the restatements could be substantial, and it expects expenses from the investigation to be "significant." We are maintaining our operating earnings per share estimate for 2006, and keeping our 12-month target price of $14.


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