Analyst starts MGM MIRAGE with 'Sell' rating

Feb 3, 2009 11:29 PM
Staff & Wire Reports |

MGM MIRAGE may see a default rate of 20 percent to 30 percent on its CityCenter condominium units and faces the possibility of some asset sales, an analyst said Tuesday as he started the casino operator with a "Sell" rating.

Shares of MGM MIRAGE (MGM) slumped 72 cents, or 8.8 percent, to $7.42 in midday trading. The stock hit a new 52-week low of $7.50 earlier in the session.

Anil Daswani of Citi Investment Research said the completion of the $9.2 billion CityCenter in Las Vegas could not come at a worse time for MGM, as consumers struggle with diminishing credit, unemployment concerns and a prolonged housing downturn.

In a note to clients, Daswani said MGM has sold 55 percent of the condo units to date, but has received only 20 percent of the deposits. The analyst cautioned that if the units' prices fall about 15 percent to 20 percent from current levels that the project will turn out to be a loss for MGM.

Aside from its CityCenter woes, MGM is faced with ongoing softness in Las Vegas. Nevada has been among the hardest hit real estate markets in the country and Las Vegas has also had to deal with a pullback in consumer discretionary spending.

Daswani contends that Las Vegas is going to take a big hit from the spending pullback, as 60 percent of its revenue comes from the non-gaming segment. The slowdown in Las Vegas is particularly troubling for MGM, as 80 percent of its revenue comes from the city, he added.

Daswani also anticipates MGM may have to sell some properties, such as Mandalay Bay or Bellagio, as it tries to get a handle on its debt.

The analyst provided a price target of $2.50.

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