MGM Stock Pops as Analyst Forecasts Benefits from Nevada Capacity Increase

Posted on: February 23, 2021, 09:48h. 

Last updated on: February 24, 2021, 09:19h.

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

Domestic gaming equities are scuffling Tuesday, but MGM Resorts International (NYSE:MGM) is soaring. That’s on the back of an analyst upgrade and upward price target revision.

MGM stock
Mirage Las Vegas, seen here. An Argus analyst is bullish on MGM stock. (Image: Yahoo)

In a note to clients today, Argus analyst John Staszak boosted his rating on MGM stock to “buy” from “hold,” while lifting his price forecast to $42, implying upside of 15 percent from where the shares closed on Feb. 22.

In Las Vegas, we expect MGM to benefit from a recent decision by the governor to allow casinos in Nevada to operate at 50% of capacity,” writes the analyst.

Nevada Gov. Steve Sisolak (D) recently signed off on modestly higher capacity at gaming venues, and experts are optimistic that the percentage will rise to 50 percent in March. That’s crucial for MGM employees and investors because the company operates 13 Las Vegas venues.

In a sign that things are trending in the right direction, the gaming company said last week the hotels at Mandalay Bay, The Mirage, and Park MGM will be open seven days a week, 24 hours a day, starting March 3.

Enthusiasm Abound for MGM Stock

Up 19 percent year-to-date, the Bellagio operator is easily one of the best-performing gaming equities to start 2021. That’s a sign investors are willing to wager on increasing COVID-19 vaccinations and pent-up demand fostering a Sin City rebound in the back half of this year.

MGM stock is highly levered to that theme because the company depends on the Strip for approximately half its earnings before interest, taxes, depreciation and amortization (EBITDA). While the company has a sizable regional portfolio, capacity restrictions at those venues have largely eased, and improving margins from those properties are baked into the stock. Still, Wall Street is comfortable being bullish on the name.

“We expect demand among leisure travelers to recover this summer, and look for a rebound in the company’s convention business later in the year,” said Staszak. “In addition, we note that capacity restrictions at the company’s regional properties have, for the most part, been eased, which should lead to stronger results in the first half of 2021.”

The analyst also lauds the company’s efforts to grow the BetMGM iGaming/sports wagering unit and improvements in the MGM China business. BetMGM is live in a dozen states — a number slated to grow significantly this year — and is proving adept at commanding strong market share in those regions.

Pansy Ho Takes Some Profits

While MGM stock is in rally mode, one well-known shareholder is capitalizing on that strength to reduce her holdings.

A recent regulatory filing with the Hong Kong Stock Exchange confirms Pansy Ho, cochairperson of MGM China, sold one million shares of MGM Resorts equity earlier this month at an average price of $35.60, for gross proceeds of $35.6 million.

Ho last pared her stake in the Mirage operator through two share sales in late 2019. She still owns more than one percent of the US-based company’s equity.