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  • MGM RESORTS INTERNATIONAL (MGM) THE REAL STORY 0 comments
    Jun 13, 2012 3:00 PM | about stocks: MGM

    MGM RESORTS INTERNATIONAL (NYSE:MGM)

    06/06/2012

    Stock Price: $11.21

    200-Day MA: $12.35

    P/S: 0.66

    52WKHI/LO:

    $16.05/$7.40

    BETA: 2.49

    CURRENT RATIO: 1.37

    SALES/ASSETS FY ENDING 12/31/11: 28.27%

    ASSETS: $27766 as of 12/31/11

    SHARES OUTSTANDING A/O/12/31/12: 488.92 MILLION

    $(MIL.)

    EPS Estimates: $0.26E for FY 2012 Ending 12/31/12, and $1.59E for 2013. MGM reported a loss per share of $(0.56) for 2011.

    Revenue Estimates: $9200E for 2012 and $10400E for 2013. MGM reported revenues of $7849 for 2011.

    Assuming that total assets reach my estimate of about $37000E in 2013, and projecting out my estimated Sales/Assets ratio for 2013 of about 29%, Total Revenues should achieve my estimated of $10400E IN 2013. If you apply its recent Stock Price/Sales ratio of about 0.66 to projected Total Revenues, you could get a stock price target of about $14 per share. A target price of $14 would be within its 52-week range of about $7.40-$16.05, and just above its 200-day moving average, presently at about $12.35. In looking at the 200-day moving average trend, the stock price could be finding a base, in my view; however, with its relatively high beta, estimated by Yahoo Finance at about 2.49, this stock has been relatively volatile in the past with respect to major market moves.

    Now, it's time to grab a beer and take off your shoes, because I'm going to attempt to talk about the real story here. No guarantees, whatsoever. First, MGM Resorts International is a Las Vegas headquartered company, plain and simple, despite the fact that the holding corporation is chartered in Delaware. So, there's no way to take the game side out of the company, because gaming is a major part of their business. Its business mix is gaming, hospitality, alcohol and food, and everything consistent with that, but not necessarily in that order. If you want to understand this company, then you must first understand Las Vegas. Major Las Vegas players are MGM Resorts International, Harrah's, Las Vegas Sands and Wynn, among others. The big gaming resort hotels have obviously over-built in Las Vegas, but I say, if you build it - they might come, eventually, at least. Check out MGM's City Center. Of this bunch, Wynn strikes me as the most conservative, but maybe not the most exciting ride. By the way, I forgot to give due credit to the Stratosphere. I have to comment that Holly Madison has been a big attraction at Planet Hollywood, another major competitor on the Strip. Now, let's dance up to the Riviera, as I see it as a familiar Las Vegas senior player of historical significance. Those Crazy Girls are Great! As I leap three miles to the South, back down to the MGM Grand (the largest hotel in the world), I must salute the Las Vegas Crazy Horse Paris show. These are very special Ladies, and I must show proper respect to the Crazy Horse Paris in France, where it all started. It's part of the Parisian landscape and heritage transplanted to Las Vegas. Oh, but you wanted to hear about MGM common shares; first things first.

    MGM's biggest hurdle is its annual interest expense in the ballpark of roughly $1.1Billion. By the time the cost of generating revenues and general cash expenses have been taken out, the company, in my opinion, has been hard pressed at times, since the economic downturn, to show a cash profit. If Total Revenues ever do reach my 2013 estimate of $10.4E Billion, I would hope that MGM's ability to deal with its cost of debt financing would be substantially mitigated. From this perspective, I could believe a Net Cash Flow number, after capital spending and Interest Expense, to meet or even exceed the $1.0E Billion mark, perhaps in 2014 or later.

    For purposes of calculation, I have assumed that its cost of equity capital would be my estimate of 21.92%E; based on the CAPM, a beta of 2.49, my guess of the risk premium on the market of 8.0%E, and a risk-free interest rate of 2.0%E. Using DCF analysis, I have come up with the following estimates: A target price of $31.06E = [$1000E/(21.92%E-15.34E%)]/488.92; where $1000E represents cash flow; and, 15.34%E is my guess as to a growth rate, based on recent changes in total assets; and, finally, 488.92 is my snapshot estimate of the number of outstanding common shares.

    Based on my estimates and assumptions made above, I could view this stock as a potential double or even possibly a potential triple in the next few years. The downside could be an inability by the company to meet its debt obligations, which would void my estimates and assumptions.

    D I S C L A I M E R

    Neither the author of this report (the analyst) nor his family own or beneficially own any shares of common stock, investment securities or have any other financial interest in MGM Mirage (MGM). The analyst was not compensated by MGM Mirage or any interested parties thereto for writing this report.

    Although some information contained in this report is derived from sources believed to be true, I make no representation as to the truthfulness, correctness or accuracy of anything written in this report, and this report contains opinion and even speculation, as to the report as a whole, as well as in various statements and implications made herein. Furthermore, all information and representations made in this report are subject to change without notice. Neither this report nor anything written in it are to be construed as investment advice, and nothing written in this report is to be considered a recommendation or solicitation to purchase, hold or sell securities. Finally, I make no representation as to the suitability or appropriateness of the company described herein to any particular financial purpose. Any prospective investor must do all of his own due diligence and consult with his own financial services professional, as to the nature, suitability and appropriateness of these shares to possibly fit any suggested purpose.

     

     

              
        

    MGM

    WILD GUESS

        
        

    6/7/2012

    ESTIMATES

        
     

    PRICE

    11.21

      

    FYEND1231

        
     

    200DMA

    12.35

      

    $(MIL.)

      

    EST

    EST

     
     

    P/S

    0.66

      

    2009

    2010

    2011

    2012

    2013

     
     

    52WKHILO

     

    REVS

    $6,011.00

    $6,056.00

    $7,849.00

    $9,200.00

    $10,400.00

     
     

    16.05

    7.4

     

    %CHG

     

    0.75%

    29.61%

    17.21%

    13.04%

     
     

    SHSOUT

    488.92

     

    NI

    -$1,292.00

    -$1,437.00

    $3,115.00

    $128.67

    $775.00

     
     

    BETA

    2.49

     

    NCF

    $1,746.00

    -$1,557.00

    $1,367.00

    $518.67

    $1,000.00

     
     

    CURRENT

      

    ASSETS

    $22,518.00

    $18,952.00

    $27,766.00

    32,025.30

    36,937.64

     
     

    RATIO

    1.37

     

    %CHG

     

    -15.84%

    46.51%

    15.34%

    15.34%

    G RATE

        

    SA/ASSTS

    26.69%

    31.95%

    28.27%

    28.73%

    28.16%

     
        

    EPS

      

    -$0.56

    $0.26

    $1.59

     
        

    NPM

       

    1.40%

    7.45%

     
        

    P/S*SA/N

       

    $12.42

    $14.04

     
               
        

    COST OF EQUITY

    DCF

    DCFPREST

       
       

    USECAPM

    21.92%

    EST**

    $15,186.89

    $31.06

       
     

    2011Q1

    Q2

    Q3

    Q4

    2012Q1

    Q2E

    Q3E

    Q4E

    2013EQ1

    Q2E

    REVS

    1512

    1806

    2234

    2297

    2288

    2300

    2300

    2,312

    2300

    2500

    NI

    -89

    3442

    -124

    -114

    -217

    10

    100

    235.67

    150

    175

    EPS

    -0.16

    -0.05

    -0.14

    -0.21

    -$0.44

    $0.02

    $0.20

    $0.48

    $0.31

    $0.36

    NCF

    -68

    490

    894

    51

    -231

    249.89

    249.89

    249.89

    250

    250

               
               

    Las Vegas is a very spiritual place. The Paiutes were here. The Mormons were here. The Spirit of Las Vegas is a combination of hard work, honesty and a special brand of optimism that can only be explained if the City in fact has a spiritual dimension. From the buffet attendant, to the showgirl, to the buttoned down businessman rehearsing his presentation, they all have it. You can be around someone for five seconds and tell if they have the Las Vegas Spirit. It's the Spirit that says when you are thrown off your horse and land hard, you get up, dust off your jeans, and get back in the saddle and finish your day's work. It's the Spirit that says it's not whether you win or lose in the end, but it's how long you were on that winning streak. If everyone always went by the philosophy that the House always wins in the long run, no one would ever have been on any winning streak. Remember, it's not if you are thrown off that bull, but how long you stayed on. If you lose your two bedroom home with the cactus and palm because you lost your job and the real estate market collapsed, remember that you will get it all back if you've got the Spirit.

    I recall walking into a Japanese restaurant in DC, and a bunch of people in their 20's and 30's decided to move to Las Vegas right then and there in the restaurant. They asked me if I wanted to go. I said, "I'm already there". Once you've got the Las Vegas Spirit, you will never leave Las Vegas no matter where you go. As you descend into McCarran Airport and see the Luxor down below, the 30 something lady sitting across the aisle from you might be thinking what if I spent the weekend with this guy, and the same thought could have crossed your mind, too. Las Vegas is a very spontaneous place, and we are all well advised that surprises can happen. As you walk out the front entrance of the Airport on the Ground Transportation area on a hot July day, the 110 degree F air hits your nose, and this is a positive experience, because you know you're back in town, with new places to go and things to make happen.

    Las Vegas is a City built on Dreams, and Dreams can come true here. The Flamingo was built on a Dream. If it's fame you seek, you will find it, or at least be right next to it. If you're here to make a go of it in a business, you will find success. If you're looking for enlightenment, try the Grand Canyon or Death Valley National Park. If you're interested in Aviation, there's Nellis AFB. If you're interested in nostalgia, take a bus ride Downtown to Fremont Street, and finally, if you're interested in mysterious goings on, remember Howard Hughes, and there's always Area 51. Whatever your Fancy, everyone here has the same Spirit.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: MGM
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