UBS Slashes MGM Price Target, Citing Worsening Underlying Trends in Las Vegas
The investment bank UBS has lowered its price target for MGM Resorts, cutting its forecast from $44 to $39 per share. The analysis from UBS suggests that the underlying business trends on the Las Vegas Strip may be even weaker than they appear on the surface, raising new concerns about the near-term outlook for one of the city’s most important operators.
A Deeper Look at the Numbers
At first glance, the second-quarter’s 9% EBITDA decline was partially explained by approximately $60 million in one-time, non-recurring factors. These included disruptions from room renovations at the MGM Grand, a period of unfavorable table game hold, and a poorly performing high-end event. When these items were excluded, the underlying EBITDA decline was a more modest 2%.
However, UBS’s analysis of the third-quarter forecast paints a more concerning picture. After accounting for a projected $25 million in continued renovation-related disruptions, the expected 9% decline in EBITDA for the third quarter translates to an underlying decline of 5%. This suggests a worsening trend compared to the adjusted results of the second quarter.
The report also noted a month-to-month weakening of performance during the second quarter, with a particular slowdown in June that reportedly continued into July. Looking ahead, August and September are showing only a modest improvement.
Mizuho Also Trims Target, Citing Valuation Concerns
UBS was not the only firm to adjust its outlook on MGM. The investment bank Mizuho also trimmed its price target, though more modestly, from $59 to $58 per share.
Mizuho’s adjustment was driven by a different concern: valuation. The firm noted that MGM’s core operations are currently being valued by the market at less than four times EBITDA, a multiple that suggests a potential undervaluation of the company’s fundamental business.
A Complex Picture
The revised price targets from two major investment banks create a complex and somewhat contradictory picture for MGM Resorts. On one hand, there are clear, data-driven concerns about a potential slowdown in the company’s most important market, the Las Vegas Strip. On the other hand, at least one firm believes the market is already pricing in too much negativity and is undervaluing the company’s core assets.
Despite these near-term headwinds, MGM’s overall financial health remains strong. The company generated $17.2 billion in revenue over the last twelve months and maintains a healthy gross profit margin of 45%. The new, more cautious outlook from Wall Street, however, suggests that the company will face increased scrutiny as it navigates a potentially softening Las Vegas market in the coming months.
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