Wells Fargo reiterated its Outperform rating on MGM Resorts (MGM) after earnings with a $25-27 valuation range. The range is based on aggressive multiple assumptions for MGM’s planned REIT spin, which they value at 14x 2016E EBITDA. They believe these multiples can be sustained with continued operational improvements at MGM.

Overall though, the share price performance will be dependent on whether MGM can get back to peak Las Vegas revenues and margins, and stabilize Macau.

Results for the quarter were strong driven by:

1) improved Las Vegas Strip fundamentals - Industry fundamentals on the Las Vegas Strip have been improving, and MGM is well-positioned to capitalize on these trends.

2) progress towards management’s Profit Growth Plan initiative

3) company-specific operating outperformance.

MGM provided Q4 RevPAR growth guidance of +8% was well above consensus of +6% and aligns well with the acceleration Wells is seeing in its propriety Vegas room rates survey. Looking ahead, Wells expect mid-single digit RevPAR growth in 2016 due to muted industry supply growth and robust convention and leisure demand.

In order to value the REIT, Wells used the same multiple that they used to value GLPI. It reflects near-term growth in MGM’s Vegas EBITDAR, partially offset by MGP’s single tenant structure, smaller scale, limited geographic asset diversity, and historically high cyclicality of Las Vegas revenues.

Wells reiterated its Outperform rating and $25 - $27 valuation range.

For an analyst ratings summary and ratings history on MGM Resorts click here. For more ratings news on MGM Resorts click here.

Shares of MGM Resorts closed at $22.80 yesterday.