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MGM Resorts Strength In Vegas Lead Morgan Stanley To Resume Coverage On Stock

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The Las Vegas economy appears to be strengthening, and MGM Resorts International MGM is poised to benefit. Morgan Stanley’s Thomas Allen resumed coverage of the company with an Overweight rating and a price target of $29. He commented that the upside was “hard to ignore.”

Strong Las Vegas Fundamentals

Visitation to Las Vegas has improved 3.5 percent year-to-date. MGM recently reported 8 percent growth in 1Q RevPAR. “MGM's cross-selling ability and positioning across the price spectrum allows it to benefit from multiple trends,” analyst Thomas Allen wrote. He added that this had resulted in the Bellagio generating the highest EBITDA in Vegas in 1Q16, for the first time since 2Q12.

Profit Growth Plan

MGM's $300m profit growth plan is tracking ahead of schedule and could be significant tailwind, Allen said. The company has already recorded $65m of savings in 2H15, higher than management’s target of $30-$45m. For 1Q16, MGM recorded $59m in savings.

The analyst mentioned that management's target of $200m in cost savings appears easily achievable, representing a mere 4 percent decline in domestic costs, as compared to precedent plans that had reduced expenses by an average of ~9 percent.

“Precedents suggest a clear pattern of stock outperformance where announced plans have driven a visible acceleration in profit growth,” Allen commented.

May 2016Morgan StanleyAssumesOverweight
Apr 2016CitigroupMaintainsBuy
Jan 2016SusquehannaMaintainsPositive

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