Caesars, MGM Selloffs Creating Buying Opportunities, Says Analyst

Posted on: December 7, 2021, 10:47h. 

Last updated on: December 7, 2021, 11:43h.

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

Shares of MGM Resorts International (NYSE:MGM) and Caesars Entertainment (NASDAQ:CZR), the two largest operators on the Las Vegas Strip, are each off nearly 11 percent over the past month. However, at least one analyst believes those pullbacks will prove to be buying opportunities.

gaming equities
The center of the Las Vegas Strip, seen from above. An analyst is bullish on gaming equities with Las Vegas exposure, including Caesars and MGM. (Image: Las Vegas Review-Journal)

In restarting coverage of the gaming industry today, CBRE analyst John DeCree says the recent slide in global gaming equities hastened by the emergence of the omicron variant of the coronavirus is creating compelling opportunities to get involved with casino stocks.

In spite of the Omicron variant, we remain bullish on the domestic casino recovery, particularly in Las Vegas, where record earnings are poised to accelerate with the expected return of international visitors and convention business throughout 2022 and 2023,” he said in a note to clients.

DeCree previously covered gaming stocks for Union Gaming, which was acquired earlier this year by CBRE Group (NYSE:CBRE).

Loving Las Vegas

The analyst resumes coverage of Caesars with a “buy” rating and a $150 price target, implying upside of 63 percent from the Dec. 6 close. He also places a “buy” grade on MGM, with a $56 price forecast. That’s nearly 33 percent higher from where the Bellagio operator closed yesterday.

In both cases, DeCree cites the strength of Las Vegas and the broader US gaming industry being on solid footing as reasons to “remain enthusiastic” on Caesars and MGM. The analyst is also bullish on the growth of digital gaming, including internet casinos and online sports betting. That’s good news for Caesars and MGM. MGM’s BetMGM is the dominant US iGaming operator and the second-largest sportsbook company, while Caesars is a fast-growing competitor in both segments.

DeCree says he’s optimistic regarding the setup for online casinos and sports wagering in the US. Caesars and MGM have the deep pockets needed to compete in those arenas, and the broad portfolios necessary to offset weakness in the online space.

One of the primary themes the investment community is monitoring in the gaming industry in the wake of the coronavirus pandemic is margin expansion at operators with deep Las Vegas and regional portfolios — boxes checked by both Caesars and MGM.

Bullish on Some International Gaming Equities, Too

While DeCree said investors should be “guarded” regarding Macau-heavy operators, he is constructive on some international gaming equities, including Entain Plc (OTC:GMVHY) and Flutter Entertainment (OTC:PDYPY).

Entain is MGM’s partner on the BetMGM venture, while Flutter is the parent company of FanDuel, the largest online sportsbook operator in the US. Both are among the dominant bookmakers and technology providers in Australia and Europe, among other regions.

DeCree rates both Entain and Flutter “buy.” It’s the second time in as many days a sell-side analyst waxed bullish on the FanDuel owner.