MGM Pops After Board Member Meister Touts Sports Betting Prospects

Posted on: February 10, 2021, 11:49h. 

Last updated on: February 10, 2021, 02:21h.

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

Shares of MGM Resorts International (NYSE:MGM) rallied ahead of the company’s earnings report later today. That’s after board member Keith Meister talked up the operator’s sports betting prospects in an interview with CNBC.

Meister BetMGM
Corvex founder and MGM Director Keith Meister in a 2020 CNBC interview. He spoke bullishly on the BetMGM unit on the network today. (Image: CNBC)

In late trading, shares of the Bellagio operator are higher by nearly two percent after hitting a new 52-week high following Meister’s comments on BetMGM. Meister’s New York-based hedge fund, Corvex Management, owns 22.53 million shares of MGM, making the money manager the fourth-largest institutional investor in the gaming company.

I am massively bullish on the potential opportunity for BetMGM,” Meister said in the CNBC interview. “Over time, as investors realize the potential for BetMGM, I think that’s a very misvalued asset inside of MGM.”

Meister is a protege of financier Carl Icahn. He was named to MGM’s board in January 2019. That’s after building a stake in the gaming company in the latter half of the previous year. Icahn himself has an extensive history of investing in and pushing for change at casino operators.

Interesting Timing for Meister’s Comments

The timing of Meister’s remarks on BetMGM is interesting because, as noted above, the Mirage operator delivers fourth-quarter results after the close of US markets today, and that report is likely to contain some commentary on the sports betting business.

Analysts expect the gaming company lost 93 cents a share in the final three months of 2020 on revenue of $1.53 billion. The consensus estimate for adjusted property earnings before interest, taxes, depreciation and amortization (EBITDA) is $100.4 million. Over the past 90 days, eight analysts trimmed earnings and sales forecasts on the name, while just one boosted a turnover estimate.

In a note to clients today, Roth Capital analyst David Bain reiterated a “buy” rating on MGM while lifting his price target on the stock to $27 from $20. But that’s well below the $36.50 area at which the shares currently trade.

“Near-term traffic is likely to migrate to high-quality assets, given a convergence of price point parity driven by low visitation,” said the analyst. “While MGM’s largest driver in Las Vegas, the Bellagio, should be one of the first properties to fully recover, the mid-tier portfolio may lag, as higher-end properties likely re-ramp first.”

BetMGM: No Longer Free, Nor Should it Be

Previously, sports betting was viewed as a free call option accompanying MGM stock. But that’s changing. Corvex’s Meister isn’t the only one that sees value in BetMGM. Roth Capital’s Bain said the sports betting unit is exceeding expectations.

MGM concurs, because last month, it offered $11.06 billion for Entain Plc (OTC:GMVHY), its partner in the interactive gaming/sports wagering business. That overture was rebuffed, with the Las Vegas-based company opting against raising the bid.

Bain said consolidation is still possible, and “offers strong upside potential” should it come at a fair price.

Entering this year, BetMGM enjoyed an 18 percent market share in states in which it was operational. But that figure increases to 21 percent for states in which it debuted between January and November 2020. As of last month, the operator is live in a dozen states, and that number is slated to grow over the course of 2021.