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Harrah's Entertainment: Placing Bets Overseas

The world's largest casino operator has several international projects in the works. And it's upping the ante at home as well.

American casino operators are charging overseas, eager to take advantage of loosening gambling restrictions abroad. Harrah's Entertainment (symbol HET) is one firm in this group that's on a roll, says Citigroup gaming analyst Michael Rietbrock, who rates the stock a "buy."

The world's largest casino operator, which bought rival Caesars for $5 billion in 2005, runs 40 properties scattered throughout 12 states. Overseas, Harrah's has casinos in the works in Spain, Slovenia and the Bahamas. The Las Vegas company is also one of four firms vying to develop Singapore's first casino resort. The country reversed its decades-old ban on casino gambling last year.

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Rietbrock believes Harrah's international push has so far been overlooked. "We expect investor focus on this value to increase as individual projects take shape this year," he told clients recently. Rietbrock raised his 12-month price target for the company from $80 to $90. At $78, the share price is up 37% from its low last October.

Global aspirations aren't all Harrah's has going for it. One of the company's biggest competitive advantages is customer loyalty. Instead of chasing high-rollers like many of its competitors, Harrah's caters to small-time players, who return to the tables frequently. The company pursues repeat business with a rewards program designed to lure customers back with offers including deals on meals and rooms.

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Harrah's is also expanding stateside, with plans for new casinos in New Jersey, Iowa and Pennsylvania. The company will reopen Grand Casino Biloxi this summer, following an extensive renovation project to repair damage from Hurricane Katrina.

In 2005, Harrah's revenue jumped 56%, to $7.1 billion, boosted by the Caesars acquisition. Income rose 24% to $980 million for the year. Earnings took a hit in the fourth quarter of 2005 because of property sales and hurricane damage on the Gulf Coast. During that quarter, profits fell 32%, to $112 million, compared with $165 million in the fourth quarter of 2004. Shares of Harrah's stock currently trade at 21 times analysts' 2006 estimates of $3.68 per share, according to Thomson First Call.

--Katy Marquardt

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