Simplifying The MGM Story

Deutsche Bank analyst Carlo Santarelli believes MGM Resorts International (NYSE: MGM) is a premier on the new, inexpensive, and quickly de-leveraging. In short, MGM is a simplifying story. As a result, the brokerage boosted its price target to $29.00 from $28.00 with a Buy rating on the shares.

The analyst pointed out that in the last quarter, MGM Resorts sold the Crystals mall and received a $495 million special dividend from the proceeds. It also created a REIT structure and completed the MGP IPO, of which it now owns 76 percent. Thirdly, it acquired the Borgata and sold the real estate to MGP.

Sanaralli said, "We believe the combination of these efforts has led to significant confusion, which has clouded an improved leverage situation and an inexpensive valuation. Backed by solid LV Strip fundamentals, we continue to recommend shares here."

The analyst said its price objective is based on a sum-of-the-parts approach. He derived a blended multiple of 8.9X its 2017 EBITDA estimate for MGM International's domestic wholly owned assets and other portfolios. The brokerage would make a value adjustment to the enterprise value of MGP, in which MGM owns 76 percent take, before extracting the proportionate shares of net debt.

Deutsche Bank said, "We extract net debt and arrive at an equity value of $6 per share, with MGM's 51% stake worth ~$3 per share. Our multiples are based on peer trading levels and asset transactions in the respective markets."