MGM Stock Faces Challenges, Still Attractive Long-Term Growth Story, Says Analyst

Posted on: October 2, 2024, 05:40h. 

Last updated on: October 3, 2024, 10:08h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Shares of MGM Resorts International (NYSE: MGM) are down 11.32% year to date. That’s a dour showing relative to the gains of 20.8% and 12.3%, respectively posted by the S&P 500 and the S&P Consumer Discretionary Select Sector index — gauges in which the gaming stock resides.

MGM Grand on the Las Vegas Strip. MGM stock faces near-term challenges, but could be a long-term winner, says an analyst. (Image: MGM Resorts)

While the stock is higher by 9.18% over the past month, its laggard status may be giving investors pause about getting involved, particularly amid concerns that gross gaming revenue (GGR) in Nevada is cooling. In a new report to clients, Deutsche Bank analyst Carlo Santarelli mentioned that headwind, as well as softness in baccarat winnings for Strip operators, of which MGM is the largest.

Santarelli noted that Strip baccarat win slid 34% in August, “and this dynamic has not changed in a material way.” He pared his price target on MGM to $52 from $57 with the revised price objective implying upside of 31.2% from Wednesday’s close.

Santarelli pointed out that Las Vegas casino operators, including MGM, are unlikely to post impressive September GGR numbers because the month had one less weekend than it did in 2023. He described September as “flattish” for Strip operators while noting the third quarter overall was bumpy for venues in the US casino center.

MGM Stock Has Long-Term Catalysts

MGM stock has clearly languished, but it could reward patient investors with its attractive growth profile and strong balance sheet. The latter trait has allowed the gaming company to be a devoted buyer of its own shares.

(MGM) is an inexpensive longer-term growth story, with several organic and idiosyncratic growth drivers,” observed Santarelli.

Among the catalysts mentioned by the analyst were BetMGM, the operator’s upcoming integrated resort in Osaka, and its quest for a downstate gaming permit in New York. Should that effort prove successful, MGM could convert Empire City Casino in Yonkers into a traditional Las Vegas-style casino.

Add to that trio the fact that MGM recently proclaimed it will pursue a gaming license in the United Arab Emirates (UAE) where it has 150K square feet reserved for casino space at a hotel that is currently a nongaming property. The company’s MGM China unit is also likely to participate in the bidding for a Thailand casino permit.

Q4 Could Be Better-Than-Expected

Despite the expectations that third-quarter numbers for Strip operators are likely to be tepid, it’s possible the investment community is overstating the state of affairs for the current quarter. That could be a sign the bar is low when it comes to MGM potentially surprising to the upside.

We do not believe 4Q24 trends in Las Vegas are as ominous as most believe,” observed Santarelli. “In fact, we believe the majority of the negative sentiment around Las Vegas is largely due to the comp stack challenges, which were evident months ago, more so than a distinct change in the cadence of demand.”

The Cosmopolitan operator has one of the strongest balance sheets in the industry. The company had $2.41 billion in cash and cash equivalents at the end of the second quarter.