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Thursday, August 5, 2010

Barclay's on MGM

They have a $19 target

2Q10 CityCenter results were disappointing, creating a drag on MGM's 2Q10 earnings. So, with this backdrop, why are we still bullish on MGM? Because our original thesis has not changed: 1) the company, while still highly levered, no longer faces imminent financial risk; and 2) the metrics in Vegas, while still challenging, are improving. We found it impressive in 2Q10 that despite the weakness at CityCenter, MGM's wholly-owned Strip properties generally reported sequential EBITDA increases adjusting for the impact of hold. Our interpretation of this performance is that MGM has insulated its wholly owned properties from the anticipated cannibalization from CityCenter and should continue to benefit as convention business grows throughout the remainder of this year and next. When Vegas does ultimately improve, MGM should be very well positioned to benefit from the recovery.

2Q10 adjusted EBITDA of $250.8 million and adjusted EPS of $(0.35) missed our $290.0 million and $(0.27) estimates and consensus of $289.3 million and $(0.24) mainly driven by lower than expected results from CityCenter. Backing out the effect of low hold, MGM's EBITDA would have been $282.8 million.

RevPAR on the Strip declined 2% y-o-y, better than our 4.0% decline estimate and an 8.0% decline in 1Q10. Convention room rates in 2H10 are up 5% to 10% from the same period in 2009. In 2011, forward convention booking trends are up 20% ahead of the pace the same time last year with room rates at 15% to 20% above 2010 levels.

Our new 3Q10 EBITDA and EPS estimates are $302.9 million and $(0.28) versus our prior $364.3 million and $(0.13). Our 2010E EBITDA and EPS are $1,110.0 million and $(1.22), down from $1,210.6 million and $(0.93). Our 2011E EBITDA and EPS are $1,497.5 million and $(0.37) versus our prior $1,543.8 million and $(0.27).

And regarding LVS. I was cautious on this number at 28--but I think that the stock price hasn't caught up with its earnings. Estimates on this name continually get bumped up, and I would look for a target of 40 on LVS.

Singapore is materially helping LVS--and they just paid down a half a billion of debt.

Sheldon has some more surprises in store.

And I have to pimp the casinos today. I'm going to the track--I have a horse running!