"MGM Mirage (NYSE: MGM) is arguably the world's top publicly traded casino gaming company; from budget-minded families at the Excalibur to high-rollers at the Bellagio, no segment of the market should slip through the cracks," says value investor Nathan Slaughter.
In Half-Priced Stocks, he explains, "But this is just the beginning: the firm has ambitious plans to leverage its brands and take its gaming/hospitality experience to other growing markets around the world."
"Thanks in part to a landmark merger with cross-town rival Mandalay Group several years ago, MGM is now the dominant player on the booming Las Vegas Strip. The merger also brought together two complementary property portfolios, adding Mandalay's low/mid-tier casinos to MGM's mid/high-end resorts.
"The company also has upscale resorts in other high-profile markets, including Atlantic City's Borgata, Detroit's MGM Grand, and the Beau Rivage on Mississippi's Gulf Coast. Combined, the firm operates around 20 properties featuring more than 42,000 hotel rooms.
"And looking ahead, a busy development pipeline and global expansion plans should keep both of those totals moving briskly forward. The company recently celebrated the introduction of MGM Grand Detroit last October, and that property has already hit the ground running and emerged as a market leader.
"Two months later, MGM unveiled a spectacular $1.3 billion waterfront resort in Macau, China -- a highly
attractive market surrounded by 3 billion potential visitors. With gambling strictly forbidden on the mainland, casino-hungry China has no other gaming options.
"And Macau has already supplanted Las Vegas as the world's top gaming destination -- with average daily table wins that dwarf those in the U.S. and gaming revenues that surged +46% to hit $10 billion last year.
"At the same time, construction is rapidly progressing on MGM's CityCenter -- in the heart of the Las Vegas
Strip. Billed as a city within a city, the massive project will redefine the Las Vegas skyline. As the nation's largest privately funded development, CityCenter will raise the bar to a new level -- even by Vegas standards.
"If this wasn't enough, the company has also just announced plans to turn a vacant 72-acre parcel of land in Atlantic City adjacent to the Borgata into a dazzling $5 billion mega-resort featuring 3,000 hotel rooms and all the amenities you might expect.
"All of this (as well as other projects currently on the drawing board) should ramp-up the company's cash flows dramatically as they come on-line over the next few years.
"Until recently, the gaming industry had been one of the market's top performing sectors. However, as signs of an economic slowdown continue to surface, consumer discretionary stocks have been hit hard lately. Since peaking above $100 last October, MGM has retreated .
"Thanks to this pullback, MGM is currently trading at a very reasonable eight times EBITDA. And with a fair value of $97 (a figure boosted by the firm's substantial real estate holdings), the shares aren't much of a gamble at this level for long-term investors.
"But don't just take my word for it. The investment arm of the oil-rich Dubai government has just shelled out $2.7 billion to acquire a 50% stake in CityCenter -- a move that will shore up MGM's balance sheet and lead to recurring management fees for years to come.
"Dubai World has also been buying up large blocks of MGM shares. And several weeks ago, it made plans to scoop up even more, announcing a joint tender offer to purchase up to 15 million shares at $80 per share -- a generous 20% premium at the time.
"Clearly, this suggests the market has underpriced MGM's assets and cash flow potential -- just like many other gaming firms that have been taken private at whopping premiums. There is no reason the shares should be trading this far below the proposed tender price. Over time, I see the stock recovering from this pullback and bouncing back toward the triple-digit range."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
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