MGM Resorts (MGM) Stock Could Be A Bargain On Cash Flow

MGM Resorts International has seen its share price move around in recent years, and with new corporate drama now in play, the real question is whether the current US$37.85 price is properly anchored to the cash the business can generate. For anyone following MGM Resorts International, the key issue is no longer just where the stock has been, but what its cash flows suggest about where value sits today.

• Over the past 5 years the stock has delivered a loss of 13.7%, which puts more focus on whether long term cash generation can justify sticking with the story from here.
• The recently disclosed US$48.30 per share offer from Barry Diller and the related fiduciary duty investigation may reshape expectations for future control, capital allocation and how much of MGM Resorts International's cash flow ultimately accrues to existing shareholders.
• What if you looked at MGM Resorts International through its earnings instead? See why MGM Resorts International's 22.5x P/E tells a different valuation story.

The issue now is whether MGM Resorts International's current share price is supported by the cash flows implied in its intrinsic value estimate using the Discounted Cash Flow (DCF) approach.

To put MGM Resorts International's cash flow question in context, it can help to compare this situation with other companies by scanning 30 high quality undervalued stocks

Does MGM Resorts International Look Undervalued on Cash Flow?

The Discounted Cash Flow model here takes MGM Resorts International's expected future free cash flows and brings them back to today's dollars. On this view, the valuation work is driven by how durable and repeatable those cash streams look rather than by headline earnings.

MGM Resorts International generated roughly $1.39b of free cash flow over the last twelve months, and the projections used in the model assume that this cash generation profile keeps growing at a measured pace rather than swinging sharply higher or lower. The cash flow path is built from both analyst estimates in the near term and modest extensions further out, so the long range is more about stability than aggressive expansion. Despite the ongoing investigation into Barry Diller’s US$48.30 per share offer and the related questions around governance and control, the Discounted Cash Flow projections put MGM Resorts International's estimated intrinsic value substantially above the current share price of $37.85, which suggests the market is still pricing the stock below what its cash flows support. Find out what MGM Resorts International could be worth using our Discounted Cash Flow (DCF) estimate.

The MGM Resorts International Narrative: What Would Justify Today's Price?

Simply Wall St Narratives for MGM Resorts International pick up where the DCF puzzle leaves off and spell out which combinations of future growth, profitability and earnings paths would need to occur for the valuation to sit meaningfully above or below today's share price. They live on the Community page, and each one links its number to a specific view on how MGM Resorts International's growth profile, margin structure and risk mix could evolve, giving you something concrete to revisit as fresh information arrives.

Community views on MGM Resorts International are now split between those who see upside from new projects and bids and those who think expectations already look full.

Bull case: 25% undervalued

"The development and opening of international integrated resorts, specifically the exclusive license in MGM Osaka, anticipated multibillion-dollar revenue potential, and the Dubai project, should capture rising demand for destination travel among the growing global middle class…"

Discover why this Narrative puts MGM Resorts International at 25% undervalued.

Bear case: 35% overvalued

"Las Vegas remains MGM’s cash engine, with premium hotel rooms, conventions, shows, and high-end dining generating steady cash flow, particularly from affluent and corporate customers…"

Explore why this Narrative puts MGM Resorts International at 35% overvalued.

One more MGM Resorts International check that belongs beside the price tag

Valuation work only tells part of the MGM Resorts International story, because separate checks on the business have raised specific concerns that deserve your attention before you lean too hard on the numbers. Take a closer look at 2 warning signs before settling on a valuation.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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