MGM Stock Sporting Attractive Risk/Reward Says Analyst

• Gambling News
• 12 July 2024

Shares of MGM Resorts International (NYSE: MGM), which had been hesitant for most of the year, have recently surged, as seen by gains of 13.51% and 7.53% over the last month.

Bullish analysts include Joseph Greff of JPMorgan, who recently reaffirmed his "overweight" rating and $57 price target for MGM in a note to investors. That suggests a gain of around 24% from the closing on July 11. Greff noted that although MGM stock currently offers a "favorable risk/reward setup," the shares have been negatively impacted for the majority of this year by "terrible sector investor sentiment shaped, primarily, by macro/consumer concerns."

On the Las Vegas Strip, where MGM is the biggest operator, those worries aren't quite apparent yet. There, business is still booming, but some of the discontent investors have shown this year with the stock can be attributed to a lack of energy in certain local gaming markets where frugal customers have curbed their spending in the face of persistent inflation. More encouraging news, MGM may disclose signs of stability in local casino markets when it releases its second-quarter earnings on July 31.

Some interesting projects are not reflected in the MGM stock.

It's common knowledge that MGM is developing an integrated resort in Osaka and that the first casino hotel in Japan will likely open its doors in 2030.

Greff contended that the Osaka project and the potential for MGM to eventually construct a gaming location in the United Arab Emirates (UAE) aren't sufficiently represented in the current price of the company, even if that is already old news.

The expert stated that MGM can manage a project there and its obligations in Osaka, but he noted that there are no certainties about what could happen in the UAE because no official gaming regulations have been developed there.

"We do not think these projects are currently reflected in its shares, but we suspect that MGM’s funding contributions from free cash flow in Japan may entice investors to ascribe some equity value sometime during 2024,” wrote the analyst.

Greff stated that Osaka might add as much as $18 per share in value, while a "hypothetical" gaming project in the UAE would be accretive to MGM shares, based on what he considered to be "conservative" estimations.

MGM Balance Sheet Accolades

Due to its lengthy history of having one of the strongest balance sheets in the sector, MGM has been able to pursue acquisitions meant to strengthen its digital gaming division in addition to being a frequent buyer of its own shares.

According to Greff, the corporation has $622 million via MGM China and $2.4 billion in cash on hand. MGM's cash on hand represents 16.6% of its market capitalization even without the Macau cash.

“A slowing macro and related consumer retrenchment in both the US and China have been discussed ad nauseam, but we think MGM has embedded resilience with its higher-end leisure-customer exposure and a diversified earnings base that attracts significant non-gaming demand,” concluded the analyst.