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Investing.com -- Brokerage Citizens cut its rating on MGM Resorts (NYSE:MGM) International to market perform from outperform, warning that softer demand on the Las Vegas Strip and a ramp-up in long-dated projects will drag on earnings and stretch the casino operator’s balance sheet.
Average daily room rates quoted by some Strip operators have fallen by double-digit percentages year over year in May and June, the brokerage said, adding that booking windows are narrowing.
Citizens cut its 2025 Las Vegas EBITDAR forecast for MGM by 3% and brought forward the company’s remodel of rooms at its flagship MGM Grand to this autumn.
“Every several years, the Las Vegas market slows beyond the traditional seasonal slowdown,” the note said.
MGM plans to spend about $2.7 billion on capital projects between 2023 and 2025, with additional outlays expected for a $10-billion resort in Osaka, a possible New York casino licence and future renovations at properties such as Aria and the Cosmopolitan.
Citizens estimates lease-adjusted leverage could top 4 times, limiting share buybacks and dividends in a higher-rate environment.
The brokerage called BetMGM, the company’s U.S. sports-betting venture with Entain, a “bright spot” but said MGM’s 50% stake leaves an overhang if the operator wants full control.
It assigned no value to the nascent global digital division, projecting an EBITDA loss of about $10 million in 2026.
Citizens expects MGM’s brick-and-mortar EBITDAR to be flat to down 3% in 2025-26 and said investors are unlikely to reward the stock until growth prospects improve.
“We believe shares trading at 11% our 2026E FCF yield … represents fair value,” it wrote, comparing that with peers at roughly 14%.
Shares of MGM were trading down 1.56% lower at $33.35 in premarket trading.