Join        Login             Stock Quote

MGM Mirage: Next Shoe to Drop – Defaults at CityCenter (Actionable Short Alert) - Citi

 February 03, 2009 10:35 AM

Citigroup is out with a killer call on MGM Mirage (NYSE:MGM) initiating the stock with a Sell rating and a $2.50 tgt.

20-30% default rate at CityCenter? — Completion of this mega-project could not come at a worse time for MGM. To date, 55% of condo units have been sold, with only 20% deposits being received. Considering estimated spot prices have fallen 33% since the pre-sales (peak), Citi's base case is a 20-30% default rate. Analysis shows if prices fell a further ~15-20% from current levels, the condo projects will be loss making (the Mandarin condos aside).

Las Vegas already on life support — With 60% of Las Vegas revenues now coming from non-gaming revenues, weaker discretionary spending has a greater impact on the Strip. As 80% of MGM's revenues come from Las Vegas, the firm forecasts MGM's LV Strip EBITDA to decline 32% to $1.1b in 2009E – with an EBITDA margin of 21.5%, 640bps below a 2008E margin of 27.9%.

Dependent on revolver — To avoid violating its 7.5x Debt to EBITDA covenant, they calculate the group needs to generate $1.84b in 2009 EBITDA, vs. estimate of $1.39b. On Citi's thesis of a 20% condo default rate, they estimate the group will be sitting on $13.8b in debt. At this stage, debt maturity in 2009 and 2010 can be met by MGM's $7b revolver but they do not rule out assets sales, with Mandalay Bay and Bellagio as potential targets.

Target price at $2.50 — Firm ascribes a 7x EBITDA value for the group's gaming assets (the mean valuation of US players). With $15.4bn in debt (including unconsolidated JVs), they struggle to find any equity value for the group. They are 24% below the Street on 09E EBITDA and 30% below on 10E EBITDA.

Notablecalls: So this is why the casino stocks have been so weak of late. I suspect anything above the $7.00 level is an Actionable Short in MGM.

I see the stock trading towards $6 level in the very near term as fear sets in. There is very little MGM can do to better their situation. I don't think they can pull off a deal similar to LVS to keep them afloat around current levels. Best case seems to be a way below mkt offering with huge dilution.
iOnTheMarket Premium


Comments Closed

rss feed

Latest Stories

article imageThe Soda Industry Is Dying - But PepsiCo Will Thrive

Although diet crazes come and go, one trend has become clear: Americans are drinking less soda. Per-capita read on...

article imageDefensive Sectors Lead Hesitant Market, But Traders Honor Long-standing Bullish Support

Last week, the major indexes fell back below round-number thresholds that had taken a lot of effort to read on...

article imageWill Janet Yellen's Outlook Prevail?

Federal Reserve Chairwoman Janet Yellen told the crowd last week that rate hikes are coming. The rise will read on...

Popular Articles

Daily Sector Scan
Partner Center

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.