MGM Macau, iGaming Exposure Lauded by Analyst

Posted on: February 24, 2023, 04:43h. 

Last updated on: February 24, 2023, 04:43h.

MGM Resorts International (NYSE: MGM) equity bulls got some good news today as an analyst sung the praises of the gaming company’s breadth and online exposure, among other factors.

MGM’s Aria on the Las Vegas Strip. An analyst praised the stock today, calling for significant upside potential. (Image: YouTube)

In a note to clients today, Barclays analyst Brandt Montour initiated coverage of the casino operator with an “overweight” rating and a $59 price target. That implies upside of 38.4% from the stock’s closing print of $42.60 today.

We see MGM as a global leader in premium gaming, with an unmatched combination of market breadth and premium brand positioning across both land and digital, with shareholder-friendly management, and a very attractive [free cash flow] yield valuation implied for its core business,” wrote Montour.

MGM is the largest operator on the Las Vegas Strip and is one of the dominant names when comes to attracting high-end clientele due to properties such as Aria, Bellagio and Cosmopolitan, among others.

MGM Geographic Diversity Praised

Owing to its status as the biggest operator on the Strip, MGM could be vulnerable to a pullback in consumer discretionary spending caused by macroeconomic factors such as rising interest rates and stubbornly high inflation.

The Excalibur operator can reduce some of that vulnerability by way of its extensive regional portfolio and its exposure to resurgent Macau. MGM owns about 56% of MGM China, which operates two integrated resorts in the special administrative region (SAR).

“MGM has attractive premium positioning in both Las Vegas and U.S. regionals, with any near to medium ‘cooling off’ risk more than offset by upside from Macau’s ongoing recovery, though Las Vegas shows no signs of slowing,” added Montour.

The analyst added that MGM could rebuff potential consumer cyclical softness in Las Vegas by way of a robust 2023 convention calendar, sports wagering expansion and other events such as the F1 race in November.

Montour also pointed out that MGM winning approval to convert Empire City Casino at Yonkers Raceway in New York to a traditional casino would add $2 per share in value to the stock and that the operator’s Osaka, Japan project could contribute another $5.

MGM Unparalleled iGaming Exposure, Capital Return Plans

MGM owns 50% of BetMGM, which is the largest internet casino operator in the US and one of the top three online sportsbook firms, as measured by market share. That business is forecast to turn profitable in the second half of this year.

MGM’s “iGaming position is second to none, a business we are bullish on over the next 2-5 years,” Montour noted.

The Barclays analyst also speculated that the casino giant is likely to prioritize share buybacks over large-scale mergers and acquisitions this year — an outlook that jibes with recent comments made by MGM executives. Earlier this month, the company unveiled a new $2 billion share repurchase program. It bought back 76 million shares last year.

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