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Prudential is reiterating their Overweight rating and maintaining $18 Price target on Great Wolf Resorts (NASDAQ:WOLF). Firm believes the stock is relatively inexpensive as they remain comfortable with their estimates and management guidance. As private equity interest remains high in the lodging/leisure space, they continue to view WOLF as a potential takeout candidate.

Concerns about a slowing consumer spending, sub-prime spillover, and rising gas prices have dragged on the stock. While the company has Midwest exposure, it continues to decline as a percentage of the business and by the end of 2008, it could be less than 20% of EBITDA, based on the current pipeline. Out of the gate, WOLF stumbled since their Winter 06/07 opening in Mason, OH given patron and employee health complaints potentially caused from the water's chlorine in the waterpark. Management's immediate response to this issue was a positive as management and health officials say conditions have improved at the lodge.

Prudential still thinks the company is close to announcing several new Great Wolf locations in the next few months. They believe Great Wolf makes sense in higher density markets, particularly when next to incremental traffic drivers (lifestyle centers/major outlet malls/theme parks, as well as other tourist attractions). They think that filling the pipeline adds to the story and turns WOLF into a growth vehicle and not just a turnaround story.

Notablecalls: One for investors. WOLF has created a nice concept and by expanding will likely generate some nice return for shareholders.

WOLF 1-yr chart:

wolf chart

Source: Great Wolf Resorts: Impressive Expansion, Takeover Candidate