Business Week’s Gene Marcial believes MGM Mirage is a solid, underpriced asset:

a.  MGM Mirage shares have crashed from $73 in February to a 52-week low of 21.65 on July 15.

b.  MGM has attracted the fancy of Dubai, which has acquired a 10% stake through its Dubai World group. The average price that Dubai paid for its 30 million shares, which it bought in the last 12 months, is about $85 each. The biggest stakeholder in MGM is activist investor Kirk Kerkorian, who has accumulated some 54% of MGM, or about 150 million shares.

c. There is a strong likelihood that a buyout offer for MGM at about 50 a share will surface.

d. Of late, the company has been busy buying back stock. In the fourth quarter of 2007, it repurchased some 7 million shares at $90 each, followed by another purchase of 15 million shares in the first quarter of 2008 at $80 a piece. It repurchased another 7 million shares subsequently at an average cost of $72. And in May it bought back 20 million additional shares, at $61 each.

e. Kerkorian could be part of a group that might propose to buy MGM

f.  MGM continues to develop into a diversified leisure company with limited cash needs

g. MGM, he adds, is a great investment, with its 1,300 acres of Las Vegas Strip property and other land, which one analyst values at $87.5 billion.

CONCLUSION:

on fundamentals alone, MGM Mirage is a solid, underpriced asset.

Track Gene Marcial’s picks at:

http://trackthepros.com/categories.php?category_id=404