March 31, 2005 Editor: Ian Madsen, mba, cfa, Editor

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Earnings Per Share

Diluted earnings per share for fiscal 2004 (as reported by the company) were 76 cents, after an expenditure of 19 cents associated with a loss on early retirement of debt and 31 cents on an adverse state tax court ruling recorded in the first quarter of 2004. Fiscal 2004 diluted earnings per share include 11 cents attributable to construction accident-related insurance recoveries net of construction accident-related expenses, and also including those related to other income, and pre-opening costs. For the fourth quarter, diluted EPS was five cents, compared to 32 cents in the 2003 quarter.
The average of full year estimates for 2005 by the analysts included in our digest is a penny above the Zacks consensus number of $1.53 for the year. Individual analyst estimates exhibit a wide range of projections from a low of $1.30 (Goldman Sachs) to a high of $1.99 (CIBC). For FY2006, analysts’ EPS forecast ranges from a high of $2.32 (Jefferies) to a low of $1.12 (J.P. Morgan), with the digest average being $1.88.

Target Price/Valuation

Target prices for AZR stock range from $27 (Calyon) to $34(Lehman) with an average of $30.63. The most common valuation method used by the covering analysts is a 6-8x multiple on FY2005 EV/EBITDA estimates. This represents the mid-range of the historic EV/EBITDA multiple that the company’s stock has traded in.

Rating Distribution
Positive	0
Neutral	77%
Negative	23%
Avg. Target Price	$30.63

Long-Term Growth

Long term growth rates for AZR range from 8.4% (CIBC) to 15% (Smith Barney). Most analysts view the company’s future visibility to be hazy as of now due to management’s indecision on developing its prime Las Vegas property, which had been expected to begin by 1Q’05. Several analysts had pegged this asset to be the key growth catalyst for Aztar in the next few years. The company’s long-term growth prospects, therefore, hinges on how fast it can develop its Las Vegas property. Analysts believe AZR can deliver solid double-digit bottom-line growth going forward due to the strength of its Atlantic City operation.

The primary risks to long-term growth for Aztar remain the timing of regulatory approvals, consumer acceptance of new titles, integration risk, and the potential for system integrity issues with newly developed games. The timing of regulatory approvals, popularity of new games, the integrity of a newly introduced operating system, and the timely development of its Las Vegas property will have a material impact on the prospects for long-term growth of Aztar Corporation.

Individual Analyst Opinions

POSITIVE RATINGS

None

NEUTRAL RATINGS
Banc of America – The stock is rated NEUTRAL with a $28 price target. Analyst believes competitive pressures will affect Atlantic City returns going forward. Thinks investors are ignoring the fact that, although the LV property is of high value currently, it would take an enormous budget to develop it for future gains.
CIBC – The stock is rated a SECTOR PERFORMER with a $32 price target. Downgraded the stock from Sector Outperformer. Though the analyst is optimistic about The Quarter and expansion in Atlantic City, prefers to remain cautious due to management’s noncommittal attitude in Las Vegas. Thinks the future is a difficult thing to assess at this juncture.
Calyon – The stock is rated NEUTRAL with a $27 price target. The analyst prefers to remain cautious on the stock owing to earnings shortfall in 4Q’04 and the management’s decision to yet again to postpone development of the Tropicana-Las Vegas strip.
Deutsche Bank – The stock is rated HOLD with a $30 price target. Downgraded the stock from Buy owing to slower ramp up at Tropicana and postponement of development at the Las Vegas strip.
Jefferies – The stock is rated a HOLD with a $31 price target. The analyst maintains a cautious Neutral outlook on the stock.
Lehman – The stock is rated EQUAL WEIGHT with a $34 price target. The analyst ascribes a 7.25 multiple to both Tropicana Atlantic City and Tropicana Las Vegas given its development potential.
Merrill Lynch – The stock is rated NEUTRAL with no given price target. The analyst is disappointed with the company’s decision to postpone the development of its Las Vegas strip. Also, in light of the uncertainty of its core earnings in Atlantic City, the analyst prefers to maintain Neutral outlook on the stock.
Morgan Stanley – The stock is rated EQUAL WEIGHT with a $30 price target. The analyst believes that Aztar’s not accepting even near-term dilution may limit opportunities. Thinks with a Las Vegas redevelopment decision again delayed, potential growth or clarity on direction is low for now.
Smith Barney – The stock is rated HOLD with a $33 price target.
Wells Fargo – The stock is rated HOLD with no given price target.

NEGATIVE RATINGS

Bear Stearns – The stock is rated UNDERPERFORM with no given price target. The analyst downgraded the stock from positive. Believes that there is value in its Las Vegas real estate, but thinks that, despite the positives, AZR’s shares will underperform compared to a peer group that has relatively strong fundamentals. Thinks the shares, currently trading at ~$33, are a poor risk reward.
Goldman Sachs – The stock is rated an UNDERPERFORM with no given price target. The analyst believes it will take AZR longer to get meaningful incremental EBITDA from the Quarter in the near-term, especially during the seasonally slower winter months. In addition, AZR management has also decided to postpone its decision on what it plans to do with its 34 acres of land in LV, which further clouds the visibility of AZR’s organic growth prospects.
J.P. Morgan – The stock is rated UNDERWEIGHT with no given price target. The analyst reiterates Underweight rating in anticipation of disappointing ROIC on The Quarter in Atlantic City and feels it could be a drag on EPS.

Zacks Investment Research Page www.zacks.com

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