December 30, 2004  Email this 
Print this
 License or reprint this articleSTOCKS TO WATCH
MGM Mirage: Betting on Growth
New Year's is the season for high rollers, and J.P. Morgan is betting that MGM Mirage (MGG) is one of the stocks most likely to outperform the S&P 500 in 2005. The investing firm today upped its price target for the casino holding company to $87 from $72, suggesting odds are in favor of 20% appreciation.
J.P. Morgan says recent conversations with casino operators in Las Vegas revealed that most hotels are booked solid, "or are reserving 1% to 2% of their rooms for either the highest rollers or last-minute cash paying customers willing to spend at least $500 per night for a room."
That sort of pricing power, says J.P., should last well into the new year. The firm estimates that room prices will rise about 20%. Year-end casino volumes should be up by as much as 10%, according to J.P.'s calculations "based on early evaluation of credit demand and 'front money' sent to casinos, or cash sent in advance of play."
Further boosting MGM's earnings potential is the merger with Mandalay Resort Group that it will complete in the first quarter of 2005. That should drive profits up by as much as 20%, says J.P.
MGM, whose Vegas properties include The Mirage, MGM Grand, Bellagio, Treasure Island and New York, New York, is considering international expansion beyond the United Kingdom.
At $72, shares trade at 27 times the 2005 earnings estimate of $2.65 per share. While that's not exactly cheap, analysts predict 15% annual earnings growth for the next three to five year, giving MGM a more reasonable PEG of 1.8.
--Elizabeth Frengel
| |
GETTING STARTED
Use