Keith shorted MGM in the Hedgeye Virtual Portfolio at $11.37. According to his model, the TRADE resistance is at $11.71 and the TREND resistance is at $13.15.
We're negative on the long-term outlook for US casinos given the structural changes in the economy - read: housing - and more importantly, the bleak demographic outlook. The average age of the high margin slot player continues to increase, younger generations are not playing slots, and that great gambling baby boomer generation will eventually die off. In real terms, a return to peak EBITDA for MGM looks like a pipe dream to us.
Over the near-term, we don't see anything more than sluggish Strip growth. Worse, 2012 EBITDA estimates look too high for MGM. Q2 is looking more and more like a miss. Historically, 1Q REVPAR is very strong and current Street estimates call for even better REVPAR in 2Q and 3Q. We think this is unlikely as a difficult macro environment and difficult comps will weigh on future quarters.
