Susquehanna Raises MGM Price Target From $27 To $31

Susquehanna analyst Rachael Rothman boosted the price target of MGM Resorts International MGM shares to $31 from $27 following the company's action for a broad diversification and focus on continued operational enhancement. The brokerage remained positive on the stock.

The analyst commented after attending the analyst day last week saying, "MGM laid out a compelling case for a 15% CAGR in EBITDA, the achievement of an investment grade balance sheet, and the inflection in FCF growth from $0.78 p/s in 2015 to $2.31 p/s (9.4% yield) in 2018. If everything were to go according to plan, MGM could reach economic normalized EBITDAR of $3.4 billion in 2018, up 55% from pro forma 2016, and MGP would reach $1.0 billion in EBITDA, resulting in an implied per share valuation of $40+, ~30+% above our more conservative $31 price target."

The brokerage believes ~$1.5 billion in incremental EBITDAR target from MGM's new growth projects, including Borgata, Springfield, MGM Park on a normalized basis, and PGP offers the company with ~65 percent protection against same store declines.

Rothman defended his increased 12-month price objective to reflect the recent 19 percent share price appreciation in MGP, the addition of $75 million to its PGP target compared to the company's $100 million raise. Also its recent acquisition of Borgata, and the newly disclosed $450 million conversion of the Monte Carlo on the Vegas Strip into the high-end Park and boutique NoMad hotels were part of the reasons to increase the price target.

The brokerage also sees key focus on scale strength, integrated operations, tactics, yield management, and marketing apart from capital discipline commitment.