MGM Resorts International Valuation – January 2019 $MGM

Company Profile (excerpt from Reuters): MGM Resorts International, incorporated on January 29, 1986, is a holding company. The Company, through its subsidiaries, owns and operates casino resorts. The Company operates in two segments: domestic resorts and MGM China. Its domestic resorts segment consists of non-gaming operations, including hotel, food and beverage, entertainment and other non-gaming amenities. Its MGM China’s operations consist of the MGM Macau resort and casino (MGM Macau), and the development of an integrated casino, hotel and entertainment resort on the Cotai Strip in Macau (MGM Cotai). Under its resort operation, the Company’s casino resorts offer gaming, hotel, convention, dining, entertainment, retail and other resort amenities. It makes investments in its resorts through remodeled hotel rooms, restaurants, entertainment and nightlife offerings, as well as other features and amenities. Its subsidiaries include Blue Tarp reDevelopment, LLC, Mandalay Resort Group and MGM CC, LLC.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MGM – January 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $13,976,019,100 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.74 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -723.68% Fail
6. Moderate PEmg Ratio PEmg < 20 18.56 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.33 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.74 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -19.05 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.43
MG Growth Estimate 15.00%
MG Value $54.98
Opinion Undervalued
MG Grade D+
MG Value based on 3% Growth $20.71
MG Value based on 0% Growth $12.14
Market Implied Growth Rate 5.03%
Current Price $26.51
% of Intrinsic Value 48.22%

MGM Resorts International does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $-0.38 in 2014 to an estimated $1.43 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.03% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into MGM Resorts International revealed the company was trading above its Graham Number of $15.96. The company pays a dividend of $0.44 per share, for a yield of 1.7% Its PEmg (price over earnings per share – ModernGraham) was 18.56, which was above the industry average of 16.98. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-31.49.

MGM Resorts International scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$31.49
Graham Number $15.96
PEmg 18.56
Current Ratio 0.74
PB Ratio 1.33
Current Dividend $0.44
Dividend Yield 1.66%
Number of Consecutive Years of Dividend Growth 1

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $2,208,024,000
Total Current Liabilities $2,977,590,000
Long-Term Debt $14,663,972,000
Total Assets $29,973,515,000
Intangible Assets $5,813,972,000
Total Liabilities $19,227,336,000
Shares Outstanding (Diluted Average) 540,396,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.84
Dec2017 $3.35
Dec2016 $1.92
Dec2015 -$0.82
Dec2014 -$0.31
Dec2013 -$0.35
Dec2012 -$3.62
Dec2011 $5.62
Dec2010 -$3.19
Dec2009 -$3.41
Dec2008 -$3.06
Dec2007 $5.31
Dec2006 $2.22
Dec2005 $1.50
Dec2004 $1.43
Dec2003 $0.80
Dec2002 $0.92
Dec2001 $0.53
Dec2000 $0.55
Dec1999 $0.36
Dec1998 $0.31

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.43
Dec2017 $1.40
Dec2016 $0.07
Dec2015 -$0.53
Dec2014 -$0.38
Dec2013 -$0.61
Dec2012 -$1.00
Dec2011 $0.29
Dec2010 -$1.73
Dec2009 -$0.49
Dec2008 $1.14
Dec2007 $2.91
Dec2006 $1.59
Dec2005 $1.20
Dec2004 $0.98
Dec2003 $0.71
Dec2002 $0.62

Recommended Reading:

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.


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