Mgg



|MGM Mirage |(MGG-NYSE) |$70.29 |

NOTE TO READER: All new material since last report is highlighted.

Overview

MGM MIRAGE (MGG) acts largely as a holding company and, through wholly owned subsidiaries, operates hotel, casino and entertainment resorts. The Company's operations consist of 12 wholly owned casino resorts and 50% investments in two other casino resorts, including the Bellagio, MGM Grand Las Vegas, The Mirage, Treasure Island, New York-New York Hotel and Casino, Boardwalk Hotel and Casino and Monte Carlo Resort & Casino (50% owned) in Las Vegas, Nevada, The Primm Valley Resorts in Primm, Nevada, Beau Rivage in Biloxi, Mississippi, MGM Grand Detroit, Borgata (50%-owned) in Atlantic City, New Jersey, and MGM Grand Australia in Darwin, Northern Territory, Australia. MGM generates a majority of its net revenues and operating income from the Las Vegas Strip resorts. In 2003, over 75% of its net revenues and operating income was generated by wholly owned Las Vegas Strip resorts. The Company is based in Las Vegas, NV and employs 36,000 people. Additional information is available on the company’s website at MGG’s fiscal year ends December 31.

Fourth quarter business trends were consistent with those experienced throughout 2004, with strong customer spending and significant increases in room rates. The Company has been adding upscale amenities across its resort portfolio, attracting more guests and capturing increased share of customer spending. Casino revenue increased 10%, with continued strength in slot revenues, up 9%, and extremely strong table games revenues, up 12%. RevPAR (revenue per available room) increased 13% at the Company's Las Vegas resorts in the 2004 fourth quarter, on top of a 5% year-over-year increase in the 2003 fourth quarter. MGG’s Board of Directors have approved a 2 for 1 Stock Split.

Analysts have identified the following issues as critical to an evaluation of the investment merits of MGG:

|Strengths/Opportunities |Weaknesses/Threats |

|Continued strength in Las Vegas: With the new tower in Bellagio, the company |Consumer oriented business: MGG’s revenue is driven by consumers and thus, |

|strengthened its position in Las Vegas. |any economic or regional issue that would negatively impact consumer |

| |sentiment could negatively impact MGG’s customer base. |

| MBG acquisition: Acquisition of MBG significantly broadened the company’s |Increase in competition: MGG faces increased competition in the high-end |

|presence and development opportunities on the Las Vegas Strip. |hotel segment (e.g. WYNN, Venetian Phase II) |

|Solid management: MGG has a very strong management and solid fundamentals. | High leverage: Once the Mandalay transaction was completed the combined |

| |entity was highly leveraged. |

|Synergies and cost savings: The acquisition of MBG will result in significant|Increasing operating and interest costs: Increasing costs are a threat to the|

|synergies and cost savings. |company. |

|High quality properties: MGG’s Las Vegas properties are considered tops. The| |

|company has done a terrific job with acquisitions and disposing of non-core | |

|entities. | |

Sales

Sales for the fourth quarter were strong across the board, with casino revenue up 10%, hotel revenue up 10% and other revenue up 11%. Overall revenues for the FY were $4,238.1, a 6.7% increase over the prior year.

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Analysts expect revenues to turn up in FY2005 as MGG benefits from the integration of the MBG assets and its focus on international assets, specifically in the U.K. One analyst (Jefferies) believes that while the rainfall could have a negative impact on MGG’s first quarter results, it is an unusual event and not an ongoing concern. Analyst thus maintains a bullish view on the stock.

Margin

Gross margin for the year was 9.6% compared to 6.1% in prior year, principally due to solid management team, high-quality assets and long term growth prospects both domestically and abroad.

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Operating margins stand to benefit significantly in FY2005 from strong consumer demand for rooms especially in the LV strip. High-end play has also propelled stronger margins. However, with integration issues possibly arising from the acquisition of the MBG assets, analysts are predicting a modest decline in operating margins for FY2005. Beyond that point, margins should steadily improve as the Company exploits lucrative international opportunities while simultaneously enjoying synergies from the MBG acquisition.

Earnings Per Share

Earnings per diluted share were $2.52, increasing by 59% in the current financial year.

The average of consensus estimates for FY2005 by the 16 analysts in our survey with published forecasts comes in at $2.99, which is similar to the current Zacks Consensus estimate. Individual analyst forecast ranges from $2.59 per share (UBS) to $3.48 per share (Jefferies). For FY2006, analysts’ EPS forecast ranges from a low of $2.88 per share (UBS) to a high of $4.51 per share (Jefferies), with the digest average being $3.63 per share. MGG’s Board of Directors approved 2 for 1 Stock split.

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Target Price/Valuation

Of the 19 analysts covering MGG, eleven gave the stock a positive rating while eight gave a neutral rating. There was no negative rating.

Research analysts have set target prices on MGG varying from $62.00 (Harris Nesbitt, Wells Fargo) to $100.00 (Legg Mason and Stern, Agee & Leach), while the average price target being $80.88. The analyst who quoted the lowest price target has adopted 9x EV/EBITDA applied to 2006 EBITDA while the analyst who quoted the highest target price has adopted 10.5x 2006E EBITDA. Valuations are in the range of 9x – 10x EBITDA. The most common valuation method adopted is EBITDA multiple while some analysts prefer EV/EBITDA multiples. One analyst (KeyBanc) has used EV to 10x 2006E cash flow ratio.

Additional Information

Management announced the sale of Mandalay’s 53.5% stake in MotorCity to its minority partner, Marian Illitch, for $525MM in order to satisfy the state law precluding an operator from owning more than one casino in Detroit. Moreover, the intended acquisition of Mandalay Resort Group has been delayed by one quarter and is now expected to be complete by the end of 2Q05 instead of March 31, due to delays in approvals from the Michigan and Illinois gaming boards. Approvals from both boards are expected during the second quarter.

Long-Term Growth

Gaming is a growth industry. Every year U.S. consumers spend more in aggregate on gaming than any other form of entertainment, including movies, books and music. It is widely expected that the overall gaming and wagering pie will continue to grow at above-average rates in comparison to the overall economy. For individual gaming operators, however, it may be a different story. While the overall industry expands it continues to be divided into more and more specialized slices with new entrants taking the majority of the industry’s growth. The rapid expansion of tribal gaming after the Indian Gaming Regulation Act of 1988 is a perfect example of this trend.

The key to individual gaming operators’ long-term growth lies in their ability to provide an entertaining experience to their customers. Gaming possesses both consumption and investment characteristics. People gamble for the chance of monetary profit and the inherent entertainment value of the gaming process. Individual operators have little control over win rates and must therefore differentiate themselves through product branding and entertainment value. Consumers tend to return if they have an enjoyable experience even when they lose money.

Long-term growth for MGM Mirage hinges on the company’s ability to effectively deploy capital in constructive ventures and leverage its strong upscale brand image and top-flight operational expertise into long-term management contracts. The recent agreement to manage operations for the New York Racing Association’s Aqueduct Racetrack in Queens provides a nice incremental source of low cost revenue and a glimpse into possible larger contracts overseas. The company has been aggressive in marketing itself to the international gaming community including operators in the United Kingdom and China. Management remains dedicated to reinvesting excess cash into capital initiatives to provide a foundation for continued growth. The company is focused on capturing incremental share of new gaming markets as the industry expands outside of the company’s core operating base of premier resorts in Las Vegas.

Modest growth should continue for the company’s primary asset base as the economy improves and consumer spending returns. The cyclical nature of the company’s gaming operations should provide upside from its current levels over the long-term. Increased competition in the high-end market posses some risk to the company’s base growth rate. New capital projects are scheduled to come on line in 2005 at the Venetian, Mandalay Bay, Caesars Palace and a new high-end resort managed by Steve Wynn. Analysts expect an increase in demand from an improving economy and strengthening consumer to absorb the new supply but investors should be aware of the impending supply risk. Should consumers and the economy recover MGM Mirage is well positioned to reestablish itself as a growth company with above-average long-term potential. In the event the economy and consumer spending remain depressed, MGM Mirage will be hard pressed to provide shareholders with returns on invested capital above it’s cost of capital and achieve above average long-term earnings growth.

Individual Analyst Opinions

POSITIVE RATINGS

Banc of America – Buy ($95) – Report Date:3/23/05 – The analyst has given a Buy rating with a target price of $95. The analyst expects cost and revenue synergies, re-investment/expansion at core assets in Vegas, Atlantic City and Detroit; and development of a new unit on the Strip and in Macau.

Deutsche Bank – Buy ($83) - Report Date:4/4/05 - The analyst has given a Buy rating to the stock with a target price of $83, believing in the considerable upside potential due to future growth prospects, sale of MGM Detroit, progress in Macau, Singapore, U.K.

Jefferies – Buy ($91) – Report Date:3/24/05 – The analyst has given a Buy rating to the stock with a target price of $91, keeping in mind that, while rainfall could have a negative impact on MGG’s 1Q results, it is an unusual event and not an ongoing concern. Moreover, the analyst continues to maintain the bullish view on MGG believing in the strong fundamentals of the company and expecting the acquisition of MBG to result in significant synergies and cost savings. However, the analyst lowered the price target to reflect the fact that the company sold its Detroit property at a lower multiple.

J P Morgan – Overweight ($87) – Report Date:4/4/05 – The analyst has given an Overweight rating to the stock with a target price of $87, citing strong same store sales, new development opportunities, and likely upside to Street estimates. Moreover, the analyst encourages investors to use the recent pullback in MGG’s stock to enhance positions.

KeyBanc – Buy(2) ($82) - Report Date:2/1/05 - The analyst has given a Buy(2) rating with a target price of $82, reflecting the increasing confidence in MGG’s management, business strategy and current fundamental outlook.

Lehman – Overweight ($78) - Report Date:3/23/05 – The analyst has given a Buy rating on the stock with a target price of $78. The analyst lowered the price target to reflect the delay in merger with MBG and sale of the Detroit property.

Legg Mason – Buy ($100) – Report Date:3/24/05 – The analyst has given a Buy rating to the stock with a target price of $100, due to MGG’s heavy exposure to the Las Vegas area, having strong growth opportunities and believing that the company will continue to diversify its revenue stream.

Merrill – Buy ($83) – Report Date:3/4/05 – The analyst has given a Buy rating with a target price of $83,believing that MGM has meaningful growth opportunities in Las Vegas, Macau and Asia.

Sterne, Agee & Leach – Buy ($100) - Report Date:2/1/05 - The analyst has given a Buy rating with a target price of $100, believing the shares will benefit from continued strength in the LV market .

UBS – Buy ($88) - Report Date:2/1/05 – The analyst has given a Positive rating on the stock with a target price of $88.

Wells Fargo - Buy ($62) - Report Date:3/23/05 - The analyst has given a Buy rating to the stock with a target price of $62, based on MGM’s premier property portfolio, top-level management team, industry leading technological innovation, and tremendous growth potential. Moreover, the analyst views the pullback in shares as a buying opportunity.

NEUTRAL RATINGS

Caylon – Neutral ($75) – Report Date:3/23/05 - The analyst has given a Neutral rating to the stock with a target price of $75. The analyst believes that MGG might be affected by the same bad January weather that showed up in MBG’s 4Q05 EPS. However, Calyon believes that that MBG’s poor results do not have negative long-term implications for MGG. Analyst lowered the target price to reflect the quarterly delay in MGM’s intended acquisition of Mandalay Resort Group.

CIBC – Sector Performer ($68) – Report Date:2/2/05 - The analyst has given a Neutral rating with a target price of $68, believing in the fundamental strength of the company’s operations.

CSFB – Neutral ($70) - Report Date:2/1/05 - The analyst has given a Neutral rating to the stock with a target price of $70, expecting that sustainability and rotational risk will be more pronounced by 2H 2005.

Goldman Sachs - Neutral – Report Date:3/23/05

Harris Nesbitt – Neutral – ($62) - Report Date:3/23/05 – The analyst has given a Neutral rating with a target price of $62, believing it will perform in line with the peer group.

Prudential Equity - Neutral – ($76) - Report Date:3/23/05

Smith Barney – Hold ($75) - Report Date:3/31/05 – The analyst has given a Neutral rating with a target price of $75, continuing to believe that MGM offers investors asset quality, management depth and financial discipline; also expecting the acquisition of Mandalay Resort Group to provide new growth vehicles. Moreover, the analyst believes a premium multiple relative to its peers is justified for MGG, given the company’s long-term development opportunities in Atlantic City, Las Vegas, and internationally.

Thomas Weisel – Peer Perform – Report Date:2/1/05 – The analyst has given a Neutral rating with no specific target price to reflect the increased competition from Wynn Las Vegas and distraction with integration of MBG.

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April 7, 2005

Editor:  Ian Madsen, MBA, CFA, Editor

imadsen@, Tel: 1-800-767-3771,x417

Marla Harkness, MBA, CFA, Senior Analyst

Assisted by: Drisha Poddar, CFA, BCOM

[pic]Research Digest Chris West, CFA, 312.640.9880 x. 22

cwest@zacks.c

155 North Wacker Drive Chicago, IL 60606

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