The Hangover: Balance Sheet Burden and Oversupply Keep Us on the Sidelines
■ Action/Event: We initiated coverage of MGM Resorts International with a Neutral rating and $12 target price. With more than 40,000 rooms on the Strip, MGM is the largest operator in Vegas with notable assets that include CityCenter, Bellagio, MGM Grand, Mirage, and Mandalay Bay. Vegas will account for approximately 80% of 2010 property EBITDA with the remainder coming from regional casinos and the 50%-owned MGM Grand Macau.
■ Investment Case: The Strip will need to see a sustained recovery in gaming and non-gaming revenue trends for MGM to benefit. MGM is principally a leverage story, given a high-debt load and as a result, we see more value accruing to fixed income investors than equity holders in the coming few years. With a high-interest burden and potential deferred maintenance issues, MGM has limited means to deleverage without selling assets or serially raising additional equity. In 2011, Las Vegas trends could improve but at a slow pace, and we anticipate pressure on room rates due to new supply. While conventions are returning to Vegas, they are returning at lower prices and with more incentives. CityCenter remains a challenge for MGM and it is a difficult to figure out how to grow this 50%-owned property without cannibalizing 100%-owned assets. In the near term, investors will focus on a Macau IPO and the sale of the Borgata interest.
■ Catalysts: 1) Completion of Macau IPO, 2) closure of Borgata sale-process, 3) update on Las Vegas trends following the opening of Cosmopolitan, and 4) continued ramp of CityCenter.
■ Valuation: Our target price is based on a sum-of-the-parts valuation using multiples of 10x, 10x, 14x, 8.2x, and 8x on our 2012 EBITDA estimates for Las Vegas, CityCenter, Macau, Borgata, and Regional Operations, respectively, discounted back to a one-year forward point.
An Asian Tiger with Many Stripes of Growth; But Overly Bullish Sentiment Has Us on the Sidelines; Initiating at Neutral
■ Action/Event: We are initiating coverage of Las Vegas Sands with a Neutral rating and $42 target price. LVS operates casinos in Asia, including Venetian Macao, Four Seasons Macao, Sands Macao, and the Marina Bay Sands in Singapore. LVS operates the Venetian/Palazzo on the Las Vegas Strip and Sands Bethlehem, a regional casino in Pennsylvania. In 2012, LVS is expected to open additional resorts (Sites 5/6) on Cotai.
■ Investment Case: LVS is an Asian powerhouse levered to the continued proliferation of gaming within the region. The company is off to an exceptionally strong start at Marina Bay Sands (MBS), as this property has exceeded initial expectations in the early innings of its ramp-up. We see significant opportunity for MBS and believe stabilized EBITDA could exceed $1 billion. Sites 5/6 in Macau offer a visible pipeline and further broaden the company’s distribution and customer segmentation. While investors are not focused on asset monetization in Asia, the sale of retail and residential projects could drive additional value in the long term. While we like the LVS story, overly bullish sentiment reminiscent to the 2007 timeframe has us on the sidelines.
■ Catalysts: 1) Update on construction progress on Sites 5/6, 2) further clarity on Sites 7/8, 3) continued ramp of MBS, and 4) improvement in Las Vegas room rate trends.
■ Valuation: Our target price is based on multiples of 10x, 15x, 15x, and 8x times our 2012 EBITDA estimates for its Las Vegas, Macau, Singapore, and Bethlehem operations, discounted back to a one-year forward point.
2 comments:
MGM LVS
Credit Suisse:
The Hangover: Balance Sheet Burden and Oversupply Keep Us on the Sidelines
■ Action/Event: We initiated coverage of MGM Resorts International with a Neutral rating and $12 target price. With more than 40,000 rooms on the Strip, MGM is the largest operator in Vegas with notable assets that include CityCenter, Bellagio, MGM Grand, Mirage, and Mandalay Bay. Vegas will account for approximately 80% of 2010 property EBITDA with the remainder coming from regional casinos and the 50%-owned MGM Grand Macau.
■ Investment Case: The Strip will need to see a sustained recovery in gaming and non-gaming revenue trends for MGM to benefit. MGM is principally a leverage story, given a high-debt load and as a result, we see more value accruing to fixed income investors than equity holders in the coming few years. With a high-interest burden and potential deferred maintenance issues, MGM has limited means to deleverage without selling assets or serially raising additional equity. In 2011, Las Vegas trends could improve but at a slow pace, and we anticipate pressure on room rates due to new supply. While conventions are returning to Vegas, they are returning at lower prices and with more incentives. CityCenter remains a challenge for MGM and it is a difficult to figure out how to grow this 50%-owned property without cannibalizing 100%-owned assets. In the near term, investors will focus on a Macau IPO and the sale of the Borgata interest.
■ Catalysts: 1) Completion of Macau IPO, 2) closure of Borgata sale-process, 3) update on Las Vegas trends following the opening of Cosmopolitan, and 4) continued ramp of CityCenter.
■ Valuation: Our target price is based on a sum-of-the-parts valuation using multiples of 10x, 10x, 14x, 8.2x, and 8x on our 2012 EBITDA estimates for Las Vegas, CityCenter, Macau, Borgata, and Regional Operations, respectively, discounted back to a one-year forward point.
An Asian Tiger with Many Stripes of Growth; But Overly Bullish Sentiment Has Us on the Sidelines; Initiating at Neutral
■ Action/Event: We are initiating coverage of Las Vegas Sands with a Neutral rating and $42 target price. LVS operates casinos in Asia, including Venetian Macao, Four Seasons Macao, Sands Macao, and the Marina Bay Sands in Singapore. LVS operates the Venetian/Palazzo on the Las Vegas Strip and Sands Bethlehem, a regional casino in Pennsylvania. In 2012, LVS is expected to open additional resorts (Sites 5/6) on Cotai.
■ Investment Case: LVS is an Asian powerhouse levered to the continued proliferation of gaming within the region. The company is off to an exceptionally strong start at Marina Bay Sands (MBS), as this property has exceeded initial expectations in the early innings of its ramp-up. We see significant opportunity for MBS and believe stabilized EBITDA could exceed $1 billion. Sites 5/6 in Macau offer a visible pipeline and further broaden the company’s distribution and customer segmentation. While investors are not focused on asset monetization in Asia, the sale of retail and residential projects could drive additional value in the long term. While we like the LVS story, overly bullish sentiment reminiscent to the 2007 timeframe has us on the sidelines.
■ Catalysts: 1) Update on construction progress on Sites 5/6, 2) further clarity on Sites 7/8, 3) continued ramp of MBS, and 4) improvement in Las Vegas room rate trends.
■ Valuation: Our target price is based on multiples of 10x, 15x, 15x, and 8x times our 2012 EBITDA estimates for its Las Vegas, Macau, Singapore, and Bethlehem operations, discounted back to a one-year forward point.
thanks for that info
The AC papers think the $250 million for Borgata and the $73 million for the land is better than what people had expected..
of course, newspeople are always behind Wall Street
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