The Sun Should Soon Shine on MGM Mirage

Storm clouds are milling over MGM Mirage (MGM). The stock is down 41% over the last 100 days (see askstockguru.com). Standard & Poor's Ratings Services reduced its rating on the stock down to "stable" from the earlier "positive" rating (see forbes.com). Its recent earnings call disclosed that the company earned 40 cents a share for the recent quarter -- 4 cents short of analysts estimates and 17 cents short YOY.

But I'm bullish.

The Company continues to expand and has announced a new mixed use Dubai resort (see gulfnews.com). The project is expected to be completed in 2012. The Company is also building a $5 BB casino in Atlantic City that is expected to open in 2012. Its $8 BB City Center development in Las Vegas -- the world's largest privately funded construction project which will occupy the prime real estate between Bellagio and Monte Carlo -- is set to open in late 2009. The company has reduced the risk by selling 50% of the project to Dubai World for $3.7 BB.

The Company has wisely reduced its expenses by partnering with third parties. Through a joint venture with Kerzner International and Istithmar Hotels, the company is building a casino on the North end of the Las Vegas Strip. Through a joint venture with the Mashentucket Pequot Indians, the company is building the MGM Grand Casino at Foxwoods at a projected cost of $700 MM. The project is set to open later this year. By partnering with third parties, MGM is saving hundreds of millions of dollars of interest payments on its existing debt by passing those costs and interest payments on to their partners. The reduced costs have facilitated rapid expansion.

The Company has further partnered with Pansy Ho Chiu-king, the daughter of Stanley Ho to open the $1.25 BB MGM Grand Macau last December. The casino has been a success and already has plans to expand with the addition of 4,400 additional meters to the second floor of the casino and a connection way to a Mandarin Oriental hotel set to open in 2009. The recent earnings call revealed, "MGM Grand Macao generated net revenues of approximately $298 million, and property EBITDA of $43 million."

This rapid expansion should fuel the stock's growth in the coming quarters. The current weakness in the stock price is a buying opportunity.

Disclosure: Long MGM