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MGM Mirage (MGM)
MGM Mirage: Don't Bet All Your Chips Just Yet
The downturn in the U.S. economy has caused a large number of consumers to reevaluate what things in life are important. During this time of uncertainty, Americans have become more conscious about every dime they spend, so it comes as no surprise that casinos are feeling the pressure. MGM Mirage is the latest company to experience a dramatic decline in quarterly profits. The casino operator lost $212.6 million in the second quarter this year. What were some of the factors that contributed to this decline? Has the company become a losing bet?
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| Stock Analysis |
At one time Las Vegas and its booming casinos could lure people from all across the world. People flocked to the city with dreams of hitting the big jackpot and living the lifestyle of the rich and famous. Those dreams have taken a backseat as gamblers try to cope with a downturn in the economy and surging job losses. MGM Mirage is reliant on consumers spending boat loads of money in their pricey resorts and huge casinos. Its occupancy levels have remained surprisingly high, but revenue-per-available-room plunged 31%. The big problem here is that people don't have the extra money to spend. Record unemployment levels have left many Americans empty-handed and wondering where their next pay check will come from? Even those individuals that are working have become less likely to take vacations and throw away money in casinos. Actually, more people are choosing “staycations” (staying at home and relaxing). A drop in convention bookings and business travel has also been cited as a contributor to the second-quarter loss. MGM Mirage can't blame the recession for all of its declines. The company was having a hard time with profits way before the economic crisis started.
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Things appeared shaky for the casino a few years ago as the company started to fall behind Wynn (WYNN: Charts, News, Offers) and Las Vegas Sands (LVS: Charts, News, Offers), which are both considered competitors. Since that time, MGM Mirage has continued to have debt and leveraging issues. A $2.6B corporate restructuring program was implemented this year to help alleviate some of these issues. An agreement between Dubai World and MGM Mirage was also considered as a way for the company to improve profits, but that agreement is currently having problems too. It looks like the company is running out of options. Maybe Billionaire Kirk Kerkorian will step in and help pull the casino out of this downturn.
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All things considered, MGM Mirage is currently a losing bet. The No. 2 casino will definitely continue to feel the heat while consumers try to recover and become more comfortable spending unnecessary money. A step in the right direction is currently underway, but the benefits may not be realized until next year. The likelihood of bankruptcy was reduced in May when the company refinanced its debt, but the company cannot keep buying time with this sort of tactic. Shares of MGM Mirage fell 2.3% during morning trading. Shares have fallen 47% just this year.
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Profile |
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