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Latest reports: Tales from the road (Dec 1, 2016); Speculation builds over Payara (Dec 19, 2016) 1Q17 risks: We expect a supportive commodity backdrop, spending clarity and confirmed return to growth all punctuated by a steady stream of large scale exploration news flow to support relative performance for Hess in 1Q17. Greatest risk to the broader energy sector comes from adherence of the OPEC agreement to support oil prices through coordinated production cuts; With this backdrop note that Hess retains one of the most resilient balance sheets in the sector, with adjusted net debt / cap of just 14% and $2.9bn of net cash on the balance sheet at end 3Q16. Company Description: Hess Corp (HES) is a mid-sized oil & gas company with 1.0bn boe of proved reserves at end 2015. E&P operations are focused in the US onshore, deep water GOM, North Sea, Guyana, West Africa, and Asia. MGM Resorts International (MGM) Shaun Kelley +1 646 855 1005 Research Analyst, MLPF&S Buy, PO $33 1Q investment thesis MGM is a levered play to improving/accelerating US economic growth. The US makes up 80% of EBITDA (70% Vegas, 20% Macau, 10% US regional) and the company has 4-5x net debt/EBITDA which is high, but coming down to under 4x by end of 2017 which could allow for a possible upgrade to investment grade by the end of 2017 or early 2018. MGM has high operating leverage (50%+ flow through of revenues) and should benefit from any macroeconomic improvement as well as already healthy/strong Las Vegas fundamentals (visitation +3% YTD, RevPAR +6% which is one of best hotel markets in the US). MGM benefits from both consumer (80%) and business (20%) travel. There is zero supply growth in Las Vegas the next 2-3 years and virtually no Airbnb/disruption risk as staying at integrated casino resorts on the Strip is key to the experience. MGM should see accelerating growth in 2017 to a very high +24% Y/Y on an organic basis. We think this is some of the highest growth we will see in the Gaming, Lodging & Leisure industries. MGM should also see a meaningful free cash flow inflection in 2017 as capex falls off dramatically after its 2 new property openings in Washington DC and Cotai/Macau. Table 1: MGM key stock data Industry Gaming Market Cap (mn) $11,993 Price $28.50 P/E (2017) 21.6x % of sell-side rated Buy 95.7% Short interest % of float 2.94% Source: Bloomberg and BofA Merrill Lynch Global Research estimates Bankof America <> Merrill Lynch Top 10 US Ideas Quarterly | 03 January 2017 9 HOUSE_OVERSIGHT_014630