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Analyst not impressed by MGM Mirage

14 Sep 2009

By Howard Stutz

LAS VEGAS, Nevada -- It doesn't appear the Leadership in Energy and Environment Design (LEED) certifications the company is announcing today for the $8.5 billion CityCenter development will impress Susquehanna gaming analyst Robert LaFleur.

In fact, LaFleur doesn't have much of a belief in MGM Mirage right now. In a note to investors this morning, LaFleur expressed surprise that MGM Mirage is trading near $12 a share on the New York Stock Exchange. He thinks the price should be closer to $4 a share.

"Right now, investors appear willing to overlook still-lackluster fundamentals and valuation levels that we have only seen in the 2006-2007 bubble years and back in 2005 during the industry's last merger and acquisition boom," LaFleur told investors. "We do not think this is sustainable."

The analyst said MGM Mirage shareholders either believe the Strip will have a strong economic recovery, are paying a multiple near the high end of the company's historic valuation range, or a combination of the two.

LaFleur can't find a reason why the company's share price has doubled since July.

"We have seen no material change in either 2010 or 2011 consensus (cash flow) projections over that time period," LaFleur said. "Even making a generous value contribution assumption for CityCenter, MGM Mirage's assets seem richly valued. Moreover, a look at fundamentals and a roadmap for recovery also do not seem to provide enough juice to justify these levels."

LaFleur did say the company's balance sheet issues from the spring, which nearly sent MGM Mirage into bankruptcy, "are safely in the rearview mirror."

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