MGM Resorts International (NYSE:MGM) is the largest operator on the Las Vegas Strip, and the shares are up 41 percent year-to-date. But one analyst is making the case the stock isn t adequately appreciated.
MGM s Golden Lion, seen above. MGM stock isn t getting the credit it deserves. An analyst thinks it can soar another 50 percent. (Image: Las Vegas Review-Journal)In a note to clients today, Credit Suisse analyst Benjamin Chaiken upgrades the Bellagio operator to “outperform” from “neutral,” with $68 price target. That implies upside of more than 53 percent from the Oct. 11 close. Chaiken s call is sparking an impressive rally in MGM stock, sending it higher by more than seven percent on volume that s already more than double the daily average.
MGM is a consensus Neutral name, in part due to a ‘conglomerate discount,’ but we think sentiment will improve. This should change now that business is being streamlined,” said Chaiken in the note. “Further, MGM will end up with ~$9 billion of cash, and can either buy back a material portion of its market cap, or invest in high growth areas, such as sports betting.”
The analyst s bull call on the casino giant comes as regarding how to proceed with its thriving BetMGM unit. DraftKings (NASDAQ:DKNG) is attempting to acquire Entain Plc (OTC:GMVHY), MGM’s partner in the BetMGM venture.
MGM Deserves More Credit for TransformationMGM is one of the pioneers of the asset-light strategy in the gaming industry, having significantly whittled its property holdings to become a leaner, cash-rich operating company. While those asset sales have been taking place for two years, Credit Suisse s Chaiken argues the stock isn t getting enough credit for the company s transformation.
“MGM has gone through a transformation, recently announcing four transactions, and we believe the market is not giving full credit,” said the analyst.
The operator s recent spate of deal-making includes of the Cosmopolitan on the Strip for about $1.6 billion, acquiring the 50 percent of City Center it didn t previously own and using that transaction to sell the real estate of Aria and Vdara to Blackstone for $$3.89 billion and VICI Properties (NYSE:VICI) $17.2 billion all-stock acquisition of MGM Growth Properties (NYSE:MGP).
That takeover efficiently monetizes MGM s $4.4 billion stake in the real estate investment trust (REIT), and the gaming company in the new VICI.
Those transactions make MGM a “cleaner, more simplified organization, with a more attractive capital structure,” said Chaiken.
Options for Cash, Limited Macau ImpactAs Chaiken notes, MGM could buyback a significant chunk of its $21.57 billion in market capitalization with its $9 billion in cash. But it s unlikely the company will spend all of that capital on share repurchases.
Should DraftKings acquire Entain and MGM is successful in retaining BetMGM, the casino company will need a technology partner for the online gaming unit, and it could acquire one with a portion of the cash stockpile/ But it remains to be seen if that will be necessary.
As for the operator s Macau exposure, which may appear to be a liability due to recent regulatory headwinds, Chaiken notes MGM China accounts for just $4 of MGM s stock price.
