MGM (MGM) Stock Could Be 29% Undervalued Following Springfield Lawsuit
MGM Resorts International enters this valuation review with a split message for investors, since the Discounted Cash Flow (DCF) intrinsic value estimate points to meaningful upside, while market based multiples suggest the stock leans expensive. On top of that, the share price has delivered a 13.2% gain over the past year, which makes the mixed signals harder to ignore.
- The 13.2% return over the last 12 months indicates that MGM Resorts International has already rewarded shareholders recently, so new buyers need to think carefully about what is left in the tank.
- Future cash flow from its resort and casino portfolio may support the DCF view of value, while legal and regulatory uncertainty highlighted by Springfield’s lawsuit could limit how much of that potential is eventually realized.
- A mixed value score, with MGM Resorts International screening attractively on some checks yet expensive on multiples, points to a stock that looks neither like a clear bargain nor a clear overvaluation on the broader metrics.
The issue now is whether MGM Resorts International’s current price fairly reflects this gap between the intrinsic value estimate and the higher read from earnings based multiples.
Spot 49 high quality undervalued stocks that, like MGM Resorts International, show a gap between intrinsic value models and market pricing before that window of mispricing potentially narrows.Is MGM Resorts International Still Cheap on Cash Flow?
The Discounted Cash Flow (DCF) approach used here focuses on what MGM Resorts International can generate for shareholders rather than short term market mood. Latest twelve month free cash flow sits at about $1.39b and is treated as part of a growing but steady stream in this 2 Stage Free Cash Flow to Equity model. On those assumptions, the model points to an intrinsic value of about $57 per share.
That compares to the current trading price, which implies the stock screens around 28.9% undervalued on this cash flow view. The lawsuit from Springfield over the Host Community Agreement helps explain why the market may be cautious, even though the cash flow profile used in the DCF still supports a higher figure than the share price.
On this Discounted Cash Flow view, MGM Resorts International appears undervalued relative to what its projected cash generation supports.
Our Discounted Cash Flow (DCF) analysis suggests MGM Resorts International is undervalued by 28.9%. Track this in your watchlist or portfolio, or discover 49 more high quality undervalued stocks.
Has MGM Resorts International Run Too Far on Earnings?
The P/E ratio fits MGM Resorts International well because earnings are a key way investors look at established resort and casino operators. MGM trades on about 24.2x earnings, which sits above both the Hospitality industry average of roughly 22.4x and a peer group around 14.4x.
A fair P/E multiple for MGM Resorts International based on its profile is estimated at about 18.6x. That is meaningfully lower than where the shares currently change hands. The gap implies investors are paying a premium to the level suggested by this tailored benchmark, even after considering the broader sector context.
On this P/E yardstick, MGM Resorts International stock appears overvalued relative to both its customised fair multiple and key comparators.
See what the numbers say about this price — find out in our valuation breakdown.
The MGM Resorts International Narrative: What Would Justify Today's Price?
Narratives for MGM Resorts International pick up where this valuation puzzle leaves off by spelling out which paths for future growth, profitability and earnings would need to play out for the shares to be worth materially more or less than today’s price. Each one turns its sense of fair value into a clear thesis about MGM Resorts International's business that investors can monitor over time, rather than treating it as a one off snapshot.
Community views on MGM Resorts International pull in opposite directions, with one camp focused on long term projects and another on execution risk and valuation stretch.
Bull case: 19% undervalued
"The development and opening of international integrated resorts, specifically the exclusive license in MGM Osaka, anticipated multibillion-dollar revenue potential, and Dubai project should capture rising demand for destination travel among the growing global middle class. This could unlock new recurring revenue streams and diversify consolidated earnings over the long term…"
Read the full Bull Case to see why MGM Resorts International could be undervalued
Bear case: 46% overvalued
"This hybrid positioning can confuse markets, but it also creates opportunity…"
Read the full Bear Case to see why MGM Resorts International could be overvalued
Do you think there's more to the story for MGM Resorts International? Head over to our Community to see what others are saying!
The Bottom Line
MGM Resorts International screens undervalued on a Discounted Cash Flow (DCF) view, while its P/E multiple points to an overvalued stock relative to peers and a tailored benchmark. The split comes from cash flow models leaning on what the resorts can earn over time, while market multiples lean on how much growth and sentiment investors are already pricing in today. With broader checks only mixed, the real hinge is whether future cash generation can overcome legal and regulatory questions rather than simply justify the current earnings multiple. That is the crux of whether today’s discount to intrinsic value proves attractive or a value trap.
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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