Seeing Macau Tailwinds Priced In, UBS Goes Neutral On MGM Resorts

MGM Resorts International (NYSE: MGM) has had a killer year, with shares climbing 37 percent over the past year and issuing its first quarterly dividend since 2004 in March.

Despite the run, UBS analyst Robin Farley believes MGM is running out of gas, and downgraded the stock from Buy to Neutral with a price target raised slightly from $33 to $36.

“Our prior more positive view was based on value creation of REIT transaction and improving Las Vegas outlook,” said Farley in a note. “We believe current valuation now captures much of the value from those factors.”

Related Link: Vegas Strip Gaming Win Outpaces State Of Nevada In June

Catalysts Priced In

While MGM isn’t necessarily in trouble, Farley doubts even near- and mid-term catalysts will provide meaningful upside.

The Cotai’s opening later this year has potential, but “growth in the Macau market has already been a tailwind for the stock given the performance of the group,” according to Farley.

The analyst maintained a 13x Macau EBITDA valuation.

Farley also believes that the coming sale of National Harbor to the MGM REIT has been priced in already.

Management Shifting Focus

MGM missed estimates for revenue per available room in the second quarter, with management citing an intentional channel shift toward total revenue per occupied room.

Farley is concerned though, that investors may be be able to distinguish said shift from a generally slowing RevPAR environment.

Management trimmed back RevPAR guidance for the year from 4–5 percent growth to 3–4 percent, but with margins higher by 25 basis points.

Each percentage point equals $2 million, and every 1 percent of margin is $14 million in profit.

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