MGM Top Casino Stock Pick at Macquarie Based on Attractive Las Vegas Calendar

Posted on: January 18, 2023, 02:46h. 

Last updated on: January 18, 2023, 05:14h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

MGM Resorts International (NYSE: MGM) could be a star among casino stocks in 2023, owing in part to an eventful Las Vegas calendar.

In a note to clients on Wednesday, Macquarie analyst Chad Beynon noted midweek Strip occupancy could dip a bit this year. But he said the return of more conventions and meetings, as well as a strong list of sporting events could support 2023 revenue upside for Strip operators such as MGM and Caesars Entertainment (NASDAQ: CZR).

Those two operators, and some others, could also benefit from the return of tourists from the Asia-Pacific, namely China.

We believe analysts have underestimated international demand (both leisure and VIP from Far East) and, in our view, this could help growth against record quarters. Our ‘Looks’ report has shown 80% correlations with gaming revenue and it bodes well for upcoming demand,” wrote Beynon.

China recently eased coronavirus travel restrictions. Some analysts believe that could lead to more arrivals from that country to major US cities, including Las Vegas, Los Angeles, and New York, among others.

MGM Has ‘Right Mix’

One of the reasons Beynon is bullish on MGM is that the Bellagio operator has a compelling mix of exposures and isn’t dependent on a single jurisdiction or theme.

“MGM is our top pick, given the right mix of exposure (58% Vegas, 25% Regional, 11% Macau, 6% Digital),” added the analyst.

He also lauded moves made by MGM last year, including selling the Mirage’s operating rights and acquiring the comparable rights to Cosmopolitan, which allows the operator to increase its exposure to a higher-end client base.

The Macquarie analyst highlights other MGM-adjacent opportunities that could support upside in the shares this year. Those include BetMGM and a rebound in Macau, which is relevant because MGM owns 56% of MGM China.

For digital, we expect for BetMGM to grow ~15%+ in ’23 and continue to believe there are opportunities to solve for the 50/50 stake. With one of the strongest balance sheets, supportive shareholders, and a goal to be a global digital leader, we expect this to be a priority. Lastly, we believe MGM China (evidenced by MGM China early ’22 stock performance) is not being appropriately reflected in the stock,” added Beynon.

He has an “outperform” rating on the Luxor operator with a $52 price target, implying more than 30% upside from the January 17 close.

Bullish on Small-Cap Casino Stocks, Too

Beynon is also constructive on select small-cap casino stocks. In alphabetical order, that group is Century Casinos (NASDAQ: CNTY), Everi Holdings (NYSE: EVRI), GAN Ltd. (NASDAQ: GAN), International Game Technology (NYSE: IGT), and PlayAGS (NYSE: AGS).

Those names, all of which sport market values below $2 billion, are considered deep-value ideas. Colorado-based Century is the only casino operator in the quintet.

“Absent CNTY and GAN, we are modeling flat to low single-digit growth for each of the names in ’23 but importantly, view negative estimate revision risk as low, given the nature of their businesses. As for CNTY and GAN, we are estimating healthy growth in the near term driven by announced deals that need to be closed/recognized,” concluded Beynon.