MGM Resorts: Las Vegas Offers Near-Term Growth, While Macau Offers A Long-Term Catalyst

Aegis Capital’s David Bain believes that MGM Resorts International’s MGM “Las Vegas position offers visible growth and upside to consensus estimates while its Macau exposure offers upside optionality.”

Bain initiated coverage of the company with a Buy rating and price target of $35, which implies upside potential of 22 percent from the current valuation.

Performance Upside

The analyst mentioned that MGM Resorts’ shares were largely driven by the Las Vegas operations, which were likely to post upside to the CY 2017 EBITDA and Rev/PAR expectations, especially given that the consensus forecasts do not include several key positive trends.

For instance, Bain noted that “the pace of MGM’s profit growth plan continues to track ahead of most estimates and we believe its $400m target could augment slightly by late next year.”

Macau Market

The analyst also expressed a constructive stance on the Macau market in the near term, with a bullish long-term stance, viewing the company’s Cotai opening as a “cash flow and equity multiple catalyst” during 2017.

Bain also pointed out that the EBITDA at MGM Resorts' existing Macau property had outperformed relative to its room and table base.

In addition, the analyst believes that balance sheet improvements, driven by a majority of new project capex being eliminated and due to free cash flow from these projects, which is currently underappreciated by the Street.