Stockchase Opinions

Jim Lebenthal MGM Resorts International MGM-N COMMENT Feb 14, 2024

He owns Wynn. Despite beating earnings today, MGM shares are down. The report was fairly positive, like Macau and the Superbowl. MGM has a big online sports betting book. Doesn't understand the selling.

$42.800

Stock price when the opinion was issued

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BUY
Allan Tong’s Discover Picks MGM made waves before last Christmas when it sold its Mirage Hotel & Casino to Hard Rock for $1.08 billion as part of its “asset-lite” strategy, which includes devoting more capital to its online sport betting operations. Therefore, companies like MGM can operate sports betting but can offset those high costs through their other operations, like casinos and hotels. Since the deal, MGM shares have gone sideways, trading between $40-46, though off 52-week highs. Sure, Covid did the casinos no favours, though MGM endured it relatively well by suffering only a $1.5 billion cash burn. (In 2019, MGM boasts $12.96 billion in net revenues, $1.8 billion in operating cash flow and a 14% cash flow margin.) Read Battle of the stocks: 2 Sports Gambling Stocks for our full analysis.
WATCH
Down 30% YTD, a struggle. Macau reopening is a focus, but he's watching Bet MGM, which is nice catalyst. They report next week.
BUY
They have little exposure (12%) to Macau and the associated risks, MGM is down 17% YTD, but up 13% in the last 3 months, though not as much as Wynn. He sees a lot of upside with MGM because of their gambling business.
BUY
Allan Tong’s Discover Picks If you still like gambling stocks, then consider MGM which was has only 12% exposure to Macau. It reported Q3 a month ago and admittedly it was mixed. Earnings missed but revenues beat. MGM’s engines of growth were its casinos as well as BetMGM and sports betting. MGM China’s revenues fell 69.7% YOY, mainly due to Covid, however Vegas revenues soared 66.6% YOY, helped by the opening of the Aria and Cosmopolitan resort-casinos. Quarterly revenue grew nearly 30% YOY. Read Between Safety and Risk: 3 Safe and Gambling Stocks for our full analysis.
HOLD

Likes their blend of casinos and sports betting. They had little exposure to Macau, which has opened now. MGM still has some tailwind, but he's reviewing in going in the second half of 2023, because the consumer will slow down.

DON'T BUY

Doesn't like casino-resorts; never believed in their balance sheets. Yes, he's wrong in the face of the strong share moves, but he still won't buy them.

PARTIAL SELL

Up nearly 50% YTD. He's thinking of trimming his holding, and may look at Wynn Resorts for having more exposure to Macau. MGM is building their presence there, though, and Bet MGM is a good catalyst. This has run a lot this year.

BUY

Their sports business has grown nicely and Las Vegas spending is picking up. Likes it.

WEAK BUY

Vegas tourism is white hot. Revenue per room was up 11% in May YOY, convention attendance up 2%, and visitors up 5%. MGM has over half its business from Vegas. But he doesn't like MGM's regional business and those patrons are struggling from higher inflation and interest rates. He Likes MGM, but prefers Wynne because it has more Vegas exposure. But Vegas' boom isn't pushing up Vegas stocks, which is frustrating. Frankly, the market is getting it wrong. When Wynne reports, their strong Macau business will shine.