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Mgm Resortscase Study

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Mgm Resortscase Study
Abstract Financial
Presents An Overall Valuation of:

MGM MIRAGE

Dan Brooks daniel.e.brooks@ttu.edu Michael Dearden michaeldearden@hotmail.com Kara Walker
Kara.m.walker@ttu.edu

Melanie Johnson
Melj524@aol.com

Table of Contents
Executive Summary…………………….…….………………….…3 Business and Industry Analysis Business Analysis……………………………….…………..6 Five Forces Model………………………………..………....7 Key Success Factors……………………………………..10 Competitive Advantage Analysis…………….…12 Accounting Analysis……………………..…………………....13 Accounting Analysis Steps…………………...…....14 Key Accounting Ratios……………………………….…22 Ratio Analysis and Forecast Financials……….…25 Financial Ratio Analysis……………………………..25 Forecast Analysis………………………………..………40 Valuation Analysis Method of Comparables……………………………….43 Discounted Cash Flow Model………………………..47 Discounted Residual Income Model…………..….48 Abnormal Earning Growth Model…………..…..49 Appendix………………………………………………………………..50

2

Executive Summary

Investment Recommendaton:

MGM MIRAGE (NYSE): MGG Date: April 1, 2005

SELL (due to overvaluation)

52 week price change Revenue (2004) Market Capitalization Shares Outstanding Dividend Yield 3-month Avg. Daily Trading Volume Percent Institutional Ownership Book Value per share (mrq) ROE (2004) ROA (2004) Est. 5 year EPS growth rate

39.61 - 79.60 4.71B 10.44 B 157,396,176 N/A 989,773 39.50% 19.88 14.66% 3.65% 1.77%

EPS Forecast for years end EPS Valuation Ratio Comparison Trailing P/E Forward P/E Forward PEG M/B Ratio Based Valuations Market Price at 4/1/05 Trailing P/E Forward P/E Forward PEG Dividend Yield M/B Intrinsic Valuation Discounted Dividends Free Cash Flows Residual Income Abnormal Earnings Growth Long-Run Residual Income Perpetuity Ford Epic Valuation

2004(A) $2.42

2005(E) $2.76 MGM Mirage 29.08 21.05 1.79 3.54

2006(E) $2.78 Industry Average 26.01 23.44 1.88 3.04

2007(E) $2.79

Cost of Capital Estimates Ke Estimated 5-yr Beta 3-yr Beta 2-yr Beta Published Beta Kd WACC

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