MGM May Be Forced To Raise Additional Debt Or Equity
Analysts at Janney Montgomery Scott maintain their "sell" rating on MGM Mirage (NYSE: MGM), while reducing their estimates for the company. The fair value for MGM is set to $8.
According to Janney Montgomery Scott, with the recent additions to the supply of hotels and the lack of airline seats in the market, the outlook for the Las Vegas Strip remains bleak. “In the recent earnings reports from the Las Vegas Strip operators (MGM, LVS, WYNN) there was a noticeable decline in the occupancy levels across the properties. We think this is partially due to the fact that airline capacity has fallen from a peak of 85,000 seats a day into the market in March 2007 to 62,000 in February of 2010.” The analysts say.
“We think airlines will need to begin to add back capacity to allow occupancy and thus RevPar to improve. We have recently seen very low ADRs throughout the Las Vegas Strip through the first half of the year," the analysts add. With the MGM expecting its credit facility reduced to $4.37 billion by October of 2011, Janney Montgomery Scott believes that “it will need to fill the gap with a potential sale of its interest in Borgata and an IPO in Macau. It could also be forced to raise additional debt or equity, depending on the Borgata sale and IPO.”
Janney Montgomery Scott has reduced its EPS estimate for 2010 from -$0.55 to -$0.72.
