MGM Stock Has Makings of 2023 Casino Winner, Analyst Claims

Posted on: December 5, 2022, 07:28h. 

Last updated on: December 6, 2022, 02:27h.

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

On a mostly rough day for casino equities, MGM Resorts International (NYSE: MGM) gained almost 2% Monday with the help of bullish sell-side commentary.

MGM stock
Bellagio on the Las Vegas Strip. Truist is bullish on operator MGM’s stock. (Image: BuzzFeed News)

In a note to clients today, Truist analyst Barry Jonas upgraded shares of the Bellagio operator to “buy” from “hold,” while boosting his price target on the stock to $50 from $40. That new forecast implies MGM stock potential upside of 32.2% from today’s close.

While we’ve historically been more cautious on bear-case macro risks to the Strip and destination markets, we would expect MGM to see relative outperformance in 2023 on the Strip’s strong event calendar and returning midweek business travel,” wrote Jonas.

There are increasing concerns about the impact high inflation and rising interest rates will have in 2023 on Las Vegas Strip operators, of which MGM is the largest. But Truist sees the Mandalay Bay operator as well-positioned to endure those macroeconomic headwinds.

Events Calendar Could Propel MGM Stock in 2023

While Las Vegas is always home to some of the best entertainment in the world and regularly hosts marquee sporting events, the 2023 events calendar could be prove particularly beneficial as a catalyst for MGM stock.

The Consumer Electronics Show (CES) returns to Sin City in January in what’s expected to be the most attended version of that convention since the start of the coronavirus pandemic. That could serve as just one example of a rebound in vital Las Vegas meetings and convention business.

Earlier this year, CFO Jonathan Halkyard said at Deutsche Bank’s 30th Annual Leveraged Finance Conference that the operator is seeing “a return to normalcy” for convention and meeting bookings. He added that the company’s Strip venues have solid reservation trends through the first half of 2023.

“We note that typically well-attended events (CES) were impacted from resurgent COVID variants last year, making for a relatively easy comp set up in 1Q23. In general, the return of conventions brings a higher-worth customer, while high profile entertainment events bring in an even higher budget customer for gaming, food and beverage and other non-gaming,” added Jonas.

Other big-name events coming to Las Vegas next year include the Electric Daisy Carnival in the second quarter, and the Formula 1 Las Vegas Grand Prix next November. Combined attendance for those events could approach 600,000.

MGM Stock Appealing

For MGM and rivals, conventions are vital, because those get-togethers boost midweek occupancy rates in Las Vegas.

“While the macro environment presents some uncertainty around the gaming outlook into 2023 (much as it was into 2022), we think the number and quality of events planned for Vegas should drive relative outperformance,” according to the Truist analysts.

Additionally, while some consumer discretionary stocks remain richly valued despite this year’s declines in the group, Jonas called MGM’s valuation “undemanding” at current levels.