April 6, 2018

MGM – Market expectations are for record-high Uniform ROA, but management has concerns about EBITDA, growth opportunities, and their core properties


      • MGM Resorts International (MGM:USA)currently trades near recent highs relative to UAFRS-based (Uniform) Assets, with a 1.6x Uniform P/B, implying bullish expectations for the firm. However, management has concerns about EBITDA, growth opportunities, and their core properties
      • Specifically, management may lack confidence in their ability to continue returning capital to shareholders, and may also lack confidence in their Monte Carlo EBITDA guidance. Additionally, they may be downplaying concerns about their ability to reach their prior peak levels in terms of their Strip EBITDA margins, and may be concerned about Monte Carlo’s poor REVPAR in 2017. Moreover, they may have concerns about their ability to find prudent growth opportunities where they have a differentiating opportunity and where returns can be outsized, and may lack confidence in Cotai’s potential, particularly in terms of its ability to improve their market share in Las Vegas. Also, they may be exaggerating their claim that positive performance in their luxury properties will lead to their core properties doing well, particularly as a result of improved pricing power, and may be downplaying concerns about the impact of the Caesars portfolio’s resort fees

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