Expert: Paul Henneman - 1/4/2007

Question
Paul

I recently purchased Harrah's stock (HET) because of all the buyout speculation.  I paid about $80 a share.  After a couple weeks of speculation, the Board said they approved a buyout offer from an equity company who was bidding $90.  The buyout is to be completed in about a year.  I anticipated the $90 price based on news reports, but am curious as to why the price of the stock has only increased to about $82-83 - I would have expected a price closer to the $90.  Is there an explanation why the price seems to be languishing at the $82 range?

Thanks,

Carl
All Expert - Christian Teen Issues

Answer
Carl,
  Thank you for the question!  In general, the markets have become tentative due to such strong performance over the past year. Most agree that the overall market is overvalued, that could be part of it. The other thing to look for is the outlook on HET's overall industry in general.
  My own firm's analysis of HET is not great. Our fair market valuation estimate is $72, well below where it is currently trading. I would suggest that the buyout speculation is what is holding the stock up at this point from a downturn. It is a bit detailed regarding how we compute this, but you are welcome to visit www.ValuEngine.com to read more. You will need to sign up to see the specifics on HET, but there is a two week trial that will give you access, I don't want to appear to be hitting you up for our service as that is not the point of this forum. Our analysis does not take into account buyout speculations. However, if you believe in our $72 valuation, and apply a $10 premium to the buyout speculation, you end up right where teh stock is currently trading. I find that interesting! We do have a Hold rating on HET.
Here are some of the numbers we look at when analyzing a stock, and the relative 'rank'. The rank is how that number relates to all other stocks, it is essentially a percentage with one the lowest, and 100 the best rank. I apologize in advance because usually when I paste this type of table in, the formatting is completely destroyed. You may need to do some forensic work to get into a readable state.

Valuation     14.30% overvalued     Valuation Rank      27
1-M Forecast Return   -0.06%    1-M Forecast Return Rank    25
12-M Return    16.74%    Momentum Rank    62
Sharpe Ratio    0.58    Sharpe Ratio Rank    73
5-Y Avg Annual Return    14.54%    5-Y Avg Annual Rtn Rank    65
Volatility    25.25%    Volatility Rank    76
Expected EPS Growth    18.01%    EPS Growth Rank    51
Market Cap (billions)    15.39    Size Rank    96
Trailing P/E Ratio    23.24    Trailing P/E Rank    60
Forward P/E Ratio   19.69    Forward P/E Ratio Rank    37
PEG Ratio   1.29    PEG Ratio Rank    44
Price/Sales    1.87    Price/Sales Rank    58
Market/Book    2.64    Market/Book Rank    39
Beta   1.04    Beta Rank    46
Alpha   0.03    Alpha Rank    56
Dividend (Yield)   1.60 (1.93%)     

I hope this is helpful. Please do not hesitate to follow up with me if I can be of any additional service!

Sincerely,
Paul Henneman
President
ValuEngine Inc
www.ValuEngine.com