MGM room rates on the rise

By Avi Salzman

Investors are worried about the effects of a slowdown in Vegas on MGM International (MGM), but they need to take a deep breath, writes Morgan Stanley analyst Mark Strawn in a note initiating coverage of the company at Equal Weight.

Despite the Equal Weight rating, Strawn appears convinced that the shares are on their way up.

“We believe the share price will rise in absolute terms over the next 60 days. Based on a recent round of industry channel checks and our proprietary Las Vega room rate survey, we expect MGM’s recent share price momentum to continue through 2Q11 earnings in late July/early August,” he writes.

Although the third quarter tends to be seasonally slower in Vegas than the rest of the year, Strawn sees leisure room rates growing at a greater than 5% rate for MGM. Strawn expects the company to post strong EBITDA growth in the second and third quarters, with a strong possibility of beating analysts’ expectations.

“If our estimates are correct, this would mark the first consecutive quarters of EBITDA beats for MGM since the second half of 2007 and should drive continued share-price outperformance.”