Oct 10

Written by:
10/10/2008 10:55 AM 

MGM Mirage (NYSE: MGM)

The Casino Operators have had a precipitous fall along with the rest of the market during the month of October. Les Vegas Sands has fallen near 40% while MGM Mirage has taken a fall from $30 a share down to $12 a share today. Look for more weakness as gambling is not in the cards for American consumers struck will dismal economic outlooks.

A Number of Issues

            First the cost of oil was keeping numbers of gamblers from visiting Las Vegas. Then the Chinese decided there were too many countrymen and women visiting Macau. Now a global credit crunch and subsequent equity collapse will prevent dollars from being gambled at casinos world-wide.

Fundamentally

            Fundamentally, I feel MGM Mirage is the weakest of the big Casino Operators. Las Vegas Sands (NYSE: LVS) is in the middle ground with Wynn Resorts (Nasdaq: WYNN) operating their properties for the most profit. MGM is experiencing a revenue decline of 3% for the year with earnings falling 30% for the same period compare to last year. The company has missed their previous three earnings estimates and seen analysts reduce current quarter earnings expectations from 41 cents a share down to 34 cents a share.

The Trade

            With some protection in some off-setting Call options you could get short the stock of MGM Mirage. Foreign investment from Dubia could lead to a spike in the price of the stock which is why the protection is needed. I am also looking for a rebound in the overall market with a couple of solid earnings announcements and a few positive government reports changing sentiment.