MGM Resorts (NYSE: MGM ) has taken the wrath of my articles for over a year now. The U.S.-based gaming company has been on my list of worst investments in gaming, a short sale in my own portfolio, and a company whose decisions I constantly question.
So today the question is: What is MGM Resorts really worth?
MGM's crown jewel
First, let's try to value the company's most valuable asset -- its 51% stake in MGM China. The company has one casino, and the prospect of building another one on the Cotai Strip in five years or so. In the past year, MGM China has generated $226.2 million of operating income for MGM.
I usually like to use enterprise value/EBITDA but since operating income, not EBITDA, was reported for most of the last year we'll use that instead. If we use an enterprise value/OI multiple of 15 times to 18 times -- more generous than EV/EBITDA multiples of competitors -- that would give me an enterprise value of $3.39 billion to $4.07 billion. Now we back out the $174 million in net debt at MGM China, which gives me an equity stake of $3.22 billion to $3.90 billion for MGM.
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