Jefferies analyst David Katz raised his rating on MGM Resorts International stock to Buy.
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MGM Resorts International stock will get a boost from a return to group tourism in Las Vegas, thanks to the spread of vaccinations and the easing of restrictions on travel and public gatherings.
As of Monday, casinos and restaurants in Las Vegas can open to 50% capacity. Further boosting the prospects of a Sin City turnaround: the $1.9 trillion stimulus that is going to put money in people’s pockets, and stoke their itch to travel and spend again.
Jefferies analyst David Katz raised his rating on MGM (ticker: MGM) stock to Buy from Hold, with a Street-high $50 price target, saying Las Vegas will have a steeper recovery starting in the second half of this year heading into 2022. The new price target implies a gain of 21% from the current price.
MGM stock rose 5.1% on Monday, and is up 30% year to date compared to the 5.7% gain in the S&P 500 index, a broad measure of the market.
The analyst also pointed to MGM’s growing presence in digital betting through its BetMGM venture with U.K.-based Entain (ENT.U.K.), which rejected MGM’s bid to buy the sports betting brand Ladbrokes earlier this year.
In early data, BetMGM captured 38% of iGaming gross gaming revenue, and 20% of online sports betting in January, Katz said. In terms of social engagement, the BetMGM brand moved up to fifth from sixth place in the last month.
BetMGM still isn’t profitable, but it is a growing and young business. Ultimately, U.S. sports betting could be a $19 billion market, according to Katz, as more states legalize mobile betting and gaming. He estimates BetMGM could get 15% to 17.5% of market share at an operating margin of 30%.
Management changes are another catalyst behind the optimism on MGM’s reopening. Two board seats went to IAC/InterActiveCorp (IAC), MGM’s biggest investor, with a focus on accelerating the digital strategy development IAC Chairman and Senior Executive Barry Diller is one of those two board members.
Casinos are trading up on the capacity increase for Las Vegas properties, but the outlook for many of them is also improving in Macau, a betting mecca in China. February casino revenue there rose 135.6%, according to Macau’s gaming bureau.
That’s not only good for MGM, it boosts Las Vegas Sands (LVS), Wynn Resorts (WYNN), and Melco Resorts & Entertainment (MLCO).
In February, MGM reported a loss of 90 cents a share, better than the expected 96-cent a share loss. Fourth quarter revenue of $1.493 billion was slightly below expectations of $1.496 billion, according to FactSet.
The full-year 2020 loss of $3.94 a share came off revenue of $5.16 billion. Analysts tracked by FactSet see an improvement this year, forecasting a loss of $1.90 a share on revenue of $8.64 billion.
Write to Liz Moyer at [email protected]
