MGM Breakout Entry Signals Technical Analysis

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Company Business Summary(Standard&Poor's)

This gaming company has a large presence in Las Vegas, and also has operations elsewhere in Nevada, Detroit, and Mississippi.

CORPORATE OVERVIEW. Most of the assets of MGM MIRAGE (formerly MGM Grand), a major gaming company, are located in Las Vegas. This includes some large properties that were part of MGM's April 2005 acquisition of Mandalay Resort Group (MBG). The merger significantly added to MGM MIRAGE's already large presence in Las Vegas, where the company now has 10 owned and operated casino/hotels on the Las Vegas Strip. This excludes the Boardwalk casino/hotel, which was closed in January 2006 to help make way for a large new project. MGM is also a joint venture partner in The Borgata, an Atlantic City casino/hotel, and has other gaming-related assets. MGM's Beau Rivage gaming facility in Mississippi reopened in August 2006; it had been closed for close to a year following damage from Hurricane Katrina.

CORPORATE STRATEGY. We see MGM's most ambitious expansion project being a plan for a multi-billion dollar development, currently called Project CitiCenter, in Las Vegas. This project would be developed on 66 acres of land that the company owns adjacent to Bellagio. In May 2006, MGM estimated the cost of Project CityCenter at about $7 billion, excluding preopening and land costs. The project may open in late 2009, and include a large casino/hotel, two boutique hotels, and residential units.We look for the sale of residential units to help pay for at least $2 billion of the project cost. Also in Las Vegas, MGM owns a 50% interest in The Signature at MGM Grand, a condominium hotel development adjacent to the MGM Grand Las Vegas casino/hotel property. When complete, The Signature is expected to include more than 1,700 residences, and MGM is receiving income from condominium sales. In Detroit, MGM has started construction of a casino/hotel project that is expected to cost about $765 million and to open in late 2007. An interim MGM casino currently operates in Detroit. Also, a 50%-owned joint venture is developing a casino/hotel project in Macau, an island gaming market that is part of China. In May 2006, MGM estimated the cost of MGM Grand Macau at $1.1 billion, including land and license rights, and preopening costs. MGM expects the resort to open in late 2007. In February 2007, the joint venture said that there have been discussions related to the development of what would be its second major resort project in Macau. The project would be located on a site in the Cotai area of Macau. Also in February, MGM said it had entered into a partnership agreement to form a joint venture to develop a mixed-use development in Jean, NV. In December 2006, MGM said it was in advanced discussions with the Diaoyutai State Guesthouse in the People's Republic of China, aimed at creating a strategic relationship to pursue non-gaming business opportunities. MGM said that the parties intend to create a joint venture to develop luxury non-gaming hotels and resorts globally MGM has entered into a definitive agreement with the New York Racing Association to manage video lottery terminals (VLTs) at the Aqueduct horse racing facility. A casino there may open in 2008. Also, MGM has entered into a strategic alliance with the Mashantucket Pequot Tribal Nation. In the fourth quarter of 2006, MGM said it had agreed to sell three casino/hotels in Primm, NV, and two casino/hotels in Laughlin, NV. The total price, from two transactions, was expected to be $600 million.We expect these casino/hotels to be treated as discontinued operations, and for the transactions to be completed in 2007's first half.

MARKET PROFILE. We estimate U.S. casino winnings in 2006 at $51 billion, of which we believe MGMowned casinos accounted for less than 10%. However, we believe that most of MGM's gaming revenues came from the Las Vegas Strip area, where we estimate that the market share of casinos now owned by MGM exceeded 30% in 2006.

COMPETITIVE LANDSCAPE. MGM has various competitors, including Harrah's Entertainment, which expanded its presence with the June 2005 acquisition of Caesars Entertainment. Also, in Las Vegas,Wynn Resorts Ltd. opened a large new casino/hotel in April 2005.

FINANCIAL TRENDS. In 2006's fourth quarter, MGM's pretax income included $86 million from Hurricane Katrina insurance recoveries. Also in 2006, a change in accounting related to stock-based compensation reduced MGM's earnings per share by about $0.15. Earlier, in 2005, MGM's acquisition of Mandalay Resort Group included equity valued at about $4.8 billion, and the assumption or repayment of Mandalay debt valued at about $2.9 billion. Also, Mandalay's equity interest in a Detroit casino was sold for about $520 million. In 2006, MGM repurchased about 6.5 million shares of its common stock at a cost of about $247 million. As of December 2006, Tracinda Corp., which we believe is wholly owned by Kirk Kerkorian, owned 56% of MGM's common shares.

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