MGM Resorts and Norfolk Southern financial outlook and macro catalysts

Deregulation/Gov’t Legislation: There aren’t any clear/obvious changes here that would impact MGM. As a labor intensive business, changes to overtime rules or the Affordable Care Act as it relates to company level costs could be modestly beneficial. Tax Policy: MGM will be a cash tax payer in 2017. Tax policy should be mixed. While they get some meaningful interest shield from their decent amount of debt, they also have relatively high capex that could benefit them if expensed as incurred. Import tariffs should be limited in impact as it’s mostly a domestic, services based business with limited COGS. Catalysts: ConAgg should generate RevPAR tailwinds. RevPAR should accelerate in Q1 and could be up double digits in the quarter driven by a strong convention calendar, headlined by the ConAgg convention which comes only once every 3 years. MGM also opened its $1.4B National Harbor casino outside of Washington on December 8". The first data points here on revenues will come in early January. MGM’s Cotai casino in Macau opens in 2Q17 and is a new $3B property. We believe expectations are reasonably low and revenues are still strong in Macau (+ double digits in 4Q). Despite recent softness, Macau peers still trade at premiums to core MGM Latest report: MGM Resorts International: Notes from the road: MGM National Harbor - the new standard for regionals 1Q risks: Macau sentiment has been fading recently as the RMB continues to depreciate and investors seek new growth opportunities domestically given the large cyclical rotations occurring in other sectors. Company Description: MGM, is a global hotel and casino gaming company, owns and operates 19 properties located in NV, MD, MS, MI, IL and Macau. It owns a 50% stake in its CityCenter joint venture on the Las Vegas Strip and a 77% interest in MGM Growth Properties, a publicly traded gaming focused real estate investment trust (REIT). Norfolk Southern (NSC) Ken Hoexter +1 646 855 1498 Research Analyst, MLPF&S Buy, PO $122 1Q investment thesis Norfolk Southern is benefiting from a volume inflection, with 9 consecutive weeks of carload growth year-over-year, after nearly 2 years of sustained negative carload declines. Aside from the ongoing inflection in data, the company should benefit in 2017 from its own structural efficiency program and many potential macro shifts currently under President-elect Trump’s Administration. The new management team (Jim Squires was named CEO in 2015) is working to change the culture and business processes, and has delivered for a few quarters. It set operating targets for the first time in company history, targeting $650 million in efficiency gains (+25% to 2015 EPS) and a 65% operating ratio by 2020. It also set $250 million in efficiency gains and a sub-70% operating ratio in 2016, allowing it to immediate progress. In January, management has noted it will further detail its efficiency gain targets, which could be a near-term catalyst for the shares. Under Trump’s proposal’s, NS could benefit from a lower tax BankofAmerica <2” 10 Top 10 US Ideas Quarterly | 03 January 2017 Merrill Lynch HOUSE_OVERSIGHT_014631