Gaming Roundup: MGM Mirage Strip Strong

For the second quarter, Las Vegas Strip giant MGM Mirage (NYSE:MGM) again posted healthy gains at its legacy properties on the Strip, while further improving overall performance at the properties acquired in last year's merger with Mandalay Resort Group. The company had the top three EBITDA generators on the Strip for the quarter, as the Bellagio, MGM Grand, and Mandalay Bay hotel/casinos combined to produce more than $280 million in EBITDA. All three properties individually outdid Wynn Resorts' (NASDAQ:WYNN) Wynn Las Vegas, as well as Las Vegas Sands' (NYSE:LVS) Venetian property.

In contrast to Wynn Las Vegas and The Venetian, both of which suffered from lower-than-normal hold percentages during the second quarter, the Bellagio benefited from a mid-upper-20s hold percentage, above the 18%-22% expected range. The high hold percentage contributed up to $16 million to property EBITDA for the quarter, which totaled $131 million.

If not for $2.8 million in write-offs, Mandalay Bay would have posted a record EBITDA quarter. Performance at the property was helped by a rise in hotel occupancy, from 90.9% to 95.7%. And while the average daily rate is expected to dip slightly in the third quarter, the company expects convention room nights to jump 36% in Q3.

Q2 2006 Las Vegas Strip

Overall Second-Quarter Results
Overall, MGM Mirage saw net revenue increase 9% to $1.9 billion for the quarter, with same-store (excluding the Mandalay properties) net revenue up 4%. Same-store net revenue was driven by a 5% increase in same-store gaming revenue and a 3% increase in same-store RevPAR at the Las Vegas Strip properties. Property EBITDA jumped 15% to $645 million -- helped largely by a full quarter of results from the Mandalay properties, rather than last year's 66 days of results during the same period -- while same-store EBITDA climbed 13%. Meanwhile, GAAP earnings rose 4% to $0.50 per share.

In addition to the gains at MGM Mirage's legacy properties, the company also improved the occupancy rate at the former Mandalay properties from 95% to 96%, bringing MGM Mirage's total combined occupancy rate up from 96% to 97%.

Elsewhere, the outstanding performance at the jointly-owned Borgata in Atlantic City has already been spoken for by partner Boyd Gaming. MGM Grand Detroit saw a 4% gain in net revenue, though EBITDA dropped slightly, from $38.8 million to $38.5 million, as an increased gaming tax rate impacted EBITDA by $2.1 million.

The $0.50-per-share earnings figure for the second quarter was shy of the $0.53-per-share analyst estimate. However, according to MGM Mirage, how the two figures actually relate is open to question. MGM Mirage only reports GAAP earnings, while the rest of the industry also report adjusted earnings, and analyst estimates for those companies are on an adjusted basis. Similarly, the company's forecast for GAAP earnings of $0.40 per share for the third quarter is shy of the $0.44-per-share analyst estimate.

Other Notes
Some other notes from the earnings release and conference call (transcript provided by StreetEvents):

• "In the context or backdrop of the economy and slowing housing and discretionary income concerns," CFO Jim Murren noted on the earnings conference call that while the higher-end properties on the Las Vegas Strip "obviously had a very, very strong second quarter," some of the lower-end properties may have seen some "softening" over the past four or five months. At the same time, the company noted that the Monte Carlo had its best-ever quarter.
  
  
• The Signature, a new non-gaming luxury hotel connected to MGM Grand, added $0.06 per share to the bottom line for the second quarter. The company expects a gain of $0.06 per share for the third quarter as well.
  
  
• The company's Beau Rivage in Biloxi is set to reopen Aug. 29, marking the one-year anniversary of Hurricane Katrina. The property will open with 2,120 slot machines, 93 table games, and a new 16-table poker room. On the conference call, MGM Mirage executive Bobby Baldwin pointed out that, through the first half of the year, the five casinos in operation along the Gulf Coast are doing a healthy 56% of pre-Katrina revenues while doing twice the win-per-position-per-day. The company expects the Beau Rivage to quickly reach -- and probably surpass -- its previous rate of $90 million in annual EBITDA. Harrah's Entertainment (NYSE:HET) and Penn National Gaming (NASDAQ:PENN) are also set to reopen properties in the market.
  
  
• As I noted yesterday in our review of Wynn Resorts and Las Vegas Sands, Macau is on fire. MGM Mirage also has a property on the way: MGM Grand Macau -- a 50/50 joint venture with Pansy Ho Chiu-king -- is slated for a Q4 2007 opening.
  
  
• Like Station Casinos (NYSE:STN), MGM Mirage has also been aggressive in buying back shares. The company spent $103 million buying back 2.5 million shares during the second quarter. As noted last week, Motley Fool Hidden Gems selection Ameristar Casinos (NASDAQ:ASCA) announced a buyback program of its own.

Second-quarter wrapup
Little has changed this week from last. Virtually every casino operator to report has either disappointed on second-quarter earnings, or otherwise disappointed on earnings guidance. This week, Wynn resorts posted an adjusted net loss of $0.05 per share, versus an expected profit of $0.05 per share on the same basis. I guess Las Vegas Sands technically met the analyst earnings estimate, but ultimately I think the bottom-line performance at The Venetian outweighed the company's overperformance in Macau. And I suppose MGM Mirage missed, and guided low as well.

That said, I think the key factors now as an investor are that, (1) while the earnings have been disappointing, the industry as a whole is clearly still on an upward trajectory; and (2) casino stocks have been hit so hard that many of them are arguably cheap. My guess is that MGM Mirage -- among several others, including Harrah's, Station Casinos, and Ameristar (though technically Ameristar blew away earnings expectations) -- falls squarely in both categories.

If you were looking for an opportunity to bet on the house, then I have to believe that this is one of them.

For full coverage of second-quarter casino earnings, check out:

• Gaming Roundup: WYNN, LVS Q2 Earnings Review
• A Solid Pinnacle
• Gaming Roundup: Harrah's, Penn National Disappoint
• A Star in Colorado
• Is Station Casinos a Buy?
• Has Boyd Reached Bottom?

Interested in outstanding small-cap stocks flying under the market's radar? Join Tom Gardner and other investors like you on the Motley Fool Hidden Gems discussion boards -- available for 30 days with a free trial.

Fool contributor Jeff Hwang owns shares of Ameristar Casinos. The Fool has an ironclad disclosure policy.