MGM tells investors to be prepared for major upswing

Gaming analysts are buying into MGM Resorts International’s guidance to investors that the company is heading into a major upswing.

In reports to investor clients, UBS Financial Services and J.P. Morgan reiterated favorable outlooks for MGM stock following last week’s first-ever Analyst and Investment Day presentations by the company.

MGM invited the investment community to Las Vegas on Thursday to hear more than four hours of presentations about the company and its plans from its executives. Following the presentation, Robin Farley of Switzerland-based UBS issued a report reiterating its “buy” rating for MGM, citing the company’s belief that it will achieve an annual adjusted cash-flow benefit of $400 million by the end of 2017, an increase from its previously announced target of $300 million. In so doing, the company also expects to re-establish an investment-grade credit rating.

Joseph Greff, an analyst with J.P. Morgan, New York, reiterated his overweight rating on MGM stock with a target price of $30 a share. “Overweight” stocks are those expected to outperform their sector, industry or the market as a whole.

An estimated 65 analysts attended the sessions and more than 400 were registered to listen to the presentation online at which executives spelled out its financial strategies and listed a parade of projects and property openings the company believes will boost its fortunes in the coming years.

Chief financial officer Dan D’Arrigo, in an interview Monday, said the goal of the event was to highlight the company’s financial achievements and explain how those achievements would affect the company’s future.

“Sometimes, Las Vegas gets painted with the same brush as other destinations in the United States, but given the critical mass we have here with our resorts and amenities we felt it would be important to simplify the story and put it together for everybody in the investment community,” D’Arrigo said.

In the opening session, MGM Chairman and CEO Jim Murren told analysts the company has “the best assets in the hospitality industry.”

“We have a deeper bench, we’re more diverse, more thoughtful, we have more ideas and we’re more innovative and creative than our competitors,” Murren said. “We are the employer of choice in Las Vegas.”

Murren said the company would continue to expand margins in Las Vegas and at other properties in other locations.

Murren said “the old playbook had to be thrown away” after the recession.

“That’s the reason why we are on a roll right now and we see a very bright future going forward,” Murren said.

Chief operating officer Corey Sanders said MGM is poised to outperform out-of-state competitors, explaining that Las Vegas visitation is in an upswing and there will be limited room supply growth in Southern Nevada over the next few years. The company estimated there were 1.5 rooms per visitor available in 2009 when the recession was at its peak. It now estimates that will fall to 1.23 rooms per visitor by 2019 as visitation climbs.

Sanders also said large-scale meeting and convention business is picking up for the company, which is expected to drive room rates higher with the demand.

D’Arrigo acknowledged that MGM’s recently enacted pay-for-parking strategy would figure positively toward the company’s bottom line, but revenue generated from it would represent a small percentage of the gains of other categories.

The company also has a parade of property openings in the months ahead, which is expected to drive new volume.

The development pipeline began in April with the opening of the T-Mobile Arena and Toshiba Plaza to drive entertainment business to the south Strip.

Next up is the $1.3 billion, 300-room MGM National Harbor in Maryland in December, which company officials expect to be the most profitable casino-hotel outside Las Vegas.

The $3 billion MGM Cotai in Macau is expected to open in the first part of 2017, doubling the company’s capacity in the former Portuguese colony in China.

The transformation of the Monte Carlo on the Strip to The Park MGM is planned by late 2018. The $450 million remake of the property will transform the upper floors of the property to NoMad Las Vegas through a partnership with the Sydell Corp.

The $865 million MGM Springfield in suburban Boston also is due in late 2018. The 250-room hotel will have a casino with 3,000 slot machines and 100 table games.

MGM stock on Monday closed down 1.3 percent, 33 cents a share, to $24.28 on average trading.

Contact Richard N. Velotta at rvelotta@reviewjournal.com or 702-477-3893. Find him on Twitter: @RickVelotta

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