MGM Mirage Inc.MGM

Morningstar Rating

Stock Research and Analysis

by Michelle Chang

MGM Mirage is the largest operator in Las Vegas with some of the most attractive properties, but the economic downturn, a crushing debt load, and an ill-timed massive new project may bring the firm to its knees. Investing in MGM may be a roll of the Read more

Bulls Say

MGM Mirage holds some of the most attractive properties on the Las Vegas Strip and generates over 50% of its revenues from nongaming activities. Historical property EBITDA margins have exceeded 30%.

MGM has entered into several high-margin management and licensing agreements across the globe. As these properties opened, MGM should begin to earn recurring revenue streams without having to bear the risks of capital outlays.

MGM is committed to keeping its high-margin properties fresh. Room renovations at the Bellagio and MGM Grand, for instance, have fueled superb results at those properties.

The company owns a 50% stake in the Borgata, which opened in 2003 and was the first new casino in Atlantic City in a decade. The casino is flourishing: It has grabbed top share in short order and spurred a revival in the market. Read more

Bears Say

The current economic downturn is placing considerable pressure on MGM's operations. The high fixed costs of operating a resort casino can magnify the effects of a sales downturn, and the firm also holds a considerable amount of debt.

The Las Vegas Convention and Visitors Authority projects room inventory to increase nearly 9% in 2009. This added supply is not helpful for hotel operators already slashing room rates.

MGM will likely be in violation of the financial covenants under its senior credit facility throughout 2009. The company has negotiated waivers through June 30, 2009, but will likely need to find a way to raise more cash and/or restructure its debt.

The firm's ambitious CityCenter project couldn't come at a worse time. The $8.5 billion development is overbudget, and many of the condos remain unsold. Read more

Strategy

MGM's casinos are targeted toward higher-income tourists and gamblers, a high-margin segment in which the company has a large share. Most of the firm's revenue comes from states with stable regulatory Read more

Management

While we view MGM Mirage's corporate governance as fair overall, we have some concerns. First, minority shareholders are powerless because Kirk Kerkorian's Tracinda owns 54% of the firm's shares and Dubai World holds another 9.4%. Second, we aren't Read more

Profile

MGM Mirage owns and operates 16 properties located in Nevada, Mississippi, and Michigan, and has 50% investments in four other properties in Nevada, New Jersey, Illinois, Read more

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