The uncertain economy has left most gaming stocks in shambles. But in spite of the carnage in the sector, there is at least one company that you need to pay attention to. That's MGM Mirage ( MGG). Here's my thinking: First off, even though the company isn't immune to macroeconomic conditions, it has advantages that its competition doesn't. For example, it has an extremely diverse revenue base in established markets throughout Nevada and Mississippi. It also has what are perceived to be "best-in-class" facilities in each of the markets in which it operates. And as a result of these factors, it has continued to draw some pretty healthy foot traffic. But even beyond geography and prestige, the company has piqued my interest by selling off redundancies from the Steve Wynn era, including $150 million in art, a corporate jet and a Fifth Avenue apartment. It also announced plans to jettison underperforming noncore assets such as the company's interests in several South African casinos. And it has reduced its annual capital expenditures by about $50 million. The end result: Over the last three years management has taken more than $1.25 billion in debt out of the equation. And this has helped reduce the company's quarterly interest expense to roughly $70 million from more than $87 million just a year ago. EBITDA per employee has jumped 30.6% over that period, while EBITDA per share has increased from $6.52 to $7.60. Of course investors should understand that the story isn't just about cost-cutting. In fact, there are several catalysts on the horizon that should drive its revenue line as well. Its biggest opportunity will come from "Borgata," which is an Atlantic City casino it's developing in conjunction with Boyd Gaming ( BYD). Assuming all goes well, the property should be up and running by next summer. What could this mean in terms of dollars and cents? It's too early to tell for sure. But the consensus is that it could tag on another $20 million to $25 million in EBITDA in 2003. Then there's Detroit, where it recently gained approval from the city to erect a new $500 million, 400-room hotel and gaming venue. Assuming the project stays on budget and the weather remains friendly, the facility should be operational by December 2005, just in time for the Super Bowl. And although it's a bit early in the game, my contacts suggest that the property could add another $100 million in EBITDA. Lastly, the company has 1,200 feet in Las Vegas strip road frontage that it could either develop or sell. To be clear, this is a wild card because realistically it could fetch north of $100 million for the land, then use the proceeds to pay down debt. But it could also build a "feeder" hotel that could serve the Bellagio and its nearby Boardwalk and Monte Carlo properties. Either way, it's a valuable asset that not too many investors are aware of that's sure to pay dividends down the line. So what's MGM Mirage worth? At minimum, $47. Here's my logic: Most analysts figure the company should garner a multiple of 8.5 times forward EBITDA, net of debt. And if, as I expect, MGM Mirage prints total EBITDA of $1.3 billion in 2003, the stock is easily worth 50% north of its recent $31 price. Bottom line: In spite of the waning economy, MGM Mirage's improved cost structure and revenue-enhancing opportunities make it worth a look. Hey, why not check out a free
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