Keith shorted MGM in the Virtual Portfolio at $9.76.
MGM management was surprisingly upbeat on ‘improving consumer trends’ in Q3. However, we are skeptical since companies such as Priceline and Orbitz have warned of worse than expected leisure bookings. Meanwhile, slot volumes, which are the ultimate barometer of the health of Vegas, have fallen in three straight months and we forecast July volume declines to accelerate.
MGM still has a long way to go to get back to acceptable leverage ratios. De-levering will have to occur in the face of bad demographics and a structurally much different economy than the housing fueled environment of the past 15 years that allowed MGM to thrive. We are negative on the long-term fundamental outlook of domestic casinos.
Keith sees the TRADE line at $10.07 and TREND at $10.84 so the current entry point is below both lines. There is no support to below $9.