MGM Resorts (MGM) Stock May Be Reasonable Despite Bid Investigation

MGM Resorts International has seen its share price fall to US$28.96, and that pullback puts fresh focus on a simple question for investors: Do the casino and hospitality group’s cash flows support where the stock trades today, especially after the failed takeover approach?

• Over the past 5 years, MGM Resorts International has delivered a share price decline of 38.5%, which puts more weight on whether the current valuation is now closely aligned with the cash the business can produce.
• The withdrawn US$48.30 per share bid from Barry Diller’s People Incorporated, and the ongoing legal scrutiny around that offer, may shape how investors think about future cash returns and what a potential buyer might be willing to pay for those cash flows.
• If you'd rather focus on earnings, this one's for you. See why MGM Resorts International's 17.2x P/E tells a different valuation story.

The issue now is whether the stream of cash flows that MGM Resorts International can generate justifies the current share price implied by the market.

If you want to stress test this same cash flow question beyond MGM Resorts International, line it up against companies in the 32 high quality undervalued stocks

Does MGM Resorts International Look Undervalued on Cash Flow?

The Discounted Cash Flow (DCF) model here uses MGM Resorts International’s own free cash generation to frame what the stock might be worth. Latest twelve month free cash flow sits at about $1.39b, and the projections used in the model assume this cash figure grows gradually over the coming decade rather than relying on a sharp rebound or aggressive expansion story.

Those steadily building cash flow estimates point to an intrinsic value that the DCF suggests is substantially above the current share price of $28.96. The withdrawn $48.30 per share proposal from People Incorporated, and the legal review around whether that offer treated existing investors fairly, helps explain why the price may still sit below what the cash flows imply. You can see the full Discounted Cash Flow (DCF) breakdown, including all the key assumptions, in the detailed model. 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?

Narratives on Simply Wall St act as the link between MGM Resorts International's current valuation puzzle and the specific future paths that would need to play out on growth, margins and earnings for the stock to be priced meaningfully higher or lower than it is today, and they sit on the platform’s Community page. Each scenario lays out the assumptions that underpin its view of fair value so you can compare those expectations with the results that MGM Resorts International actually reports over time.

Community views on MGM Resorts International are split between those who see more upside left in the story and others who think expectations already look full.

Bull case: 41% undervalued

"The Osaka integrated resort project, which is progressing on time and on budget with clearly outlined funding commitments through 2028, is expected to add a large new source of resort and gaming revenue..."

Discover why this Narrative puts MGM Resorts International at 41% undervalued.

Bear case: roughly fairly valued

"MGM continues to return capital through share repurchases while selectively investing in growth initiatives, and has shown willingness to monetize real estate through partnerships..."

Explore why this Narrative puts MGM Resorts International at roughly fairly valued.

One more factor for MGM Resorts International before you move on

Before you act on what the cash flows suggest, it is worth asking who is steering MGM Resorts International, how they are rewarded for their decisions, and whether those incentives line up with your goals. See who runs MGM Resorts International and how they are paid.

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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