Still Bearish on MGM Mirage (MGM)

A friend of Credit Bubble Stocks stayed at MGM Grand over the weekend. He said the property felt dilapidated, as though the company has been skimping on capital expenditures for maintenance and remodeling. So, it's possible that MGM's already weak cash flow cash flow numbers are being overstated to the extent of any deferred maintenance.

I read a Credit Suisse research report from April with a price target of $12 for MGM - about 20% downside to current levels. They admit that their EV/EBITDA multiple is at the "high-end of MGM’s historical trading range" but justify it "given narrowing spreads on MGM’s bonds and a reduction of bankruptcy risk on bank facility extension".

On the other hand, Goldman Sachs has it on the conviction buy list (LOL) with a $17.50 price target. They are "confident that the Vegas Strip will continue to show improvement".

People honestly think we will be back to 2007 any day now, even though negative home equity precludes mortgage equity withdrawal spending sprees, there are 40 million Americans on food stamps, and millions are permanently unemployed.

At about $1.25, the Jan 2011 MGM $10 put seems interesting.

Disclosure: Short MGM and long MGM volatility.