UPDATE: BofA Merrill Lynch Upgrades MGM Resorts International to Buy from Neutral, Raises PO to $33.50 from $21.00

In a report published Monday, Bank of America Merrill Lynch analyst Shaun Kelley upgraded MGM Resorts International

to Buy from Neutral, raising its price objective to $33.50 from $21.00. According to the report, the upgrade followed upside to estimates from Macau and to valuation as Cotai gets closer, increasing confidence in the Las Vegas hotel recovery in-sync with bullish view on U.S. hotels for 2014 and option value from new developments, real estate and new jurisdictions starting to add up. “MGM still generates ~70% of adj. EBITDA from Las Vegas,” the report noted. “We are increasingly bullish on the U.S. and West Coast hotel cycle and believe this will spill over to MGM. MGM is highly sensitive to improvements in hotel fundamentals and with RevPAR and EBITDA still 18% and 35% below prior peak, there is plenty of recovery capacity ahead. Every $5 increase in hotel rates boosts EBITDA by $50M.” The report further asserted that despite the stock's +93% move in 2013, MGM shares are still 60 percent below its dilution-adjusted 2007 peak. MGM also trades at a 20 percent discount to LVS/WYNN (same as last year) and a gap we think narrows as Cotai approaches. MGM closed Friday at $25.36 with shares trading up at 1.52 percent.