Harrah's trying to sell half of airline stake

After its stock touched a 52-week low in the wake of a negative analyst's report, Harrah's Entertainment Inc. said it is in talks to sell half of its stake in National Airlines.

Concern over losses from the start-up Las Vegas-based airline were one of the reasons Robertson Stephens gaming analyst Harry Curtis reduced earnings estimates for Harrah's Tuesday, though Curtis maintained his "buy" rating on the stock. Curtis reduced first-quarter estimates from 34 cents per share to 26 cents, and 2000 estimates from $1.80 to $1.71. The Wall Street consensus estimate for the quarter ending March 31 is 31 cents per share.

Harrah's currently owns a 48 percent stake in National. The company and the Rio each invested $15 million to launch the airline; Harrah's acquired the Rio's portion when it took over the hotel-casino last year.

"We are in discussions with a potential buyer for half the Harrah's interest in National," said spokesman Gary Thompson. "The main reason is we've never contemplated owning as much of National as we now own. We want to get back to where we originally were."

Although Harrah's has been trying to sell half of its stake for one year, Curtis expects the company will have to begin consolidating losses from its entire stake during the first quarter, rather than the half it expects to retain.

However, Curtis added the airline is expected to break even in the second quarter of this year, assuming strong growth in bookings continues.

Curtis' report also cited lower table game hold percentages at the Rio and higher-than-expected losses at Harrah's New Orleans as factors in reducing his estimates.

The Rio's table hold is now running at 12 percent, down from a norm of 19 percent. Meanwhile, Curtis said he expected the loss from New Orleans to be between $5 million and $7 million.

"We are not overly optimistic about improving results in New Orleans unless Harrah's receives regulatory and/or tax relief," Curtis wrote. "From Harrah's point of view, there are two possible outcomes over the next 12 months, both positive: either results improve or Harrah's terminates its commitment to the project."

Despite these difficulties, Curtis remained bullish on Harrah's long-term prospects, saying the company could trade at $32 once issues with the airline and New Orleans were resolved.

"We would use expected weakness in Harrah's stock to purchase," Curtis wrote.

In heavy trading Tuesday, Harrah's touched a 52-week low of $17.06. It recovered slightly to close at $17.38, down $2.44. This morning, Harrah's was up 6 cents to $17.44.

archive