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MGM 2020 EBITDA target too ambitious: Bernstein

Measures enacted as part of MGM Resorts’ “MGM 2020 Plan” will lead to an improvement in EBITDA, but is unlikely to meet the company’s expectations, according to Bernstein analysts. 

As previously outlined by the company, the “MGM 2020 Plan” is a cost-cutting and revenue optimization plan which aims to add a total of $300 million incremental EBITDA. 

Phase 1 of the project, which will be finished in 2020E, is contemplated to generate around $200 million in EBITDA, which will allow the company to achieve consolidated EBITDA of $3.6 to $3.9 billion in 2020, according to its estimates.

The first phase looks to cut labor costs - with more than 1,000 positions already cut from the company, along with the creation of COE (center of excellence) across the firm - aimed at eliminating duplicate functions/personnel at the property level. 

There are also measures in enhancing procurement efficiency, linking back to the COE initiative, as well as revenue optimization efforts - including better yielding its F&B offerings and “setting the right price to attract the right customers.” 

Phase 2 of the 2020 plan is customer-centric and focuses on technology upgrades to enhance the user experience, through increased customer spend, increased share of wallet, and through attracting the most valuable customers, notes Bernstein. 

However, the company’s goals of achieving $3.6 to $3.9 billion by 2020 have been regarded by Bernstein as “too ambitious”. 

“After "MGM 2020", the company will have leaner and more cost-effective operations and with a more centralized management strategy – however, the real question is how some of these "revenue optimization" and cost-cutting measures would ultimately affect the company's relationship with its customers; and whether the company can sustain long-term growth… is "nickel and diming" a sustainable driver for MGM performance.”

Even after factoring in property ramp-up, the analysts have forecasted the company to only reach adjusted EBITDA of $3.47 billion in 2020, in line with the consensus of $3.45 billion. 

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