MGM pursues dual strategy

Sep 24, 2002 8:33 AM

   Expanding its Players Club while buying down debt, MGM Mirage is looking forward to a strong fourth quarter.

    “We think the fourth quarter will be as good as the fourth quarter of 2000,’’ says chief financial officer Jim Murren.

   Analysts tend to agree. Goldman Sachs rates Nevada’s largest hotel-casino operator to “outperform,’’ citing “high-quality assets, strong competitive position and well-regarded management team.’’

   Generating hefty free cash flow while reducing its debt by $1.2 billion in less than two years, MGM Mirage has set the stage for a new growth cycle.

   In Detroit, where its casino is racking up a 67 percent return on investment, a major expansion is planned.

   In Atlantic City, where it is partnering with Boyd Gaming on the Borgata, MGM will build its own billion-dollar resort next door.

   In Las Vegas, a new Cirque show is landing at New York-New York and the conference business is booming at Bellagio.

    “We’re taking business from places like Scottsdale and Anaheim and Texas,’’ Murren says of the conference trade.

   At $10 billion a year, the Strip generates more revenue than all the movie theaters in the country. MGM — operator of six megaresorts along that stretch — wants to parlay that position with an expanded Players Card program that links those properties. Ultimately, that program will extend to its casinos in Atlantic City, Indiana and whatever other markets MGM Mirage enters.

   Rigorous cost-containment has boosted MGM Mirage’s standing among investors. After paying $4.4 billion for Mirage in May 2000, and recovering from the 9-11 body blow, the company is now posting the best cash flow margins (31.3 percent) among the Big Four. And, not coincidentally, its stock is on a roll.