MGM Dented by Multiple Downgrades as Analysts See Limited Near-Term Growth Opportunities

Posted on: May 21, 2020, 11:00h. 

Last updated on: May 21, 2020, 12:34h.

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

Shares of MGM Resorts International (NYSE:MGM) are trading lower Thursday, as the stock contends with several new sell-side assessments, none of which are enthusiastic.

MGM Suffers Sell-Side Blues
Three analysts chimed in on MGM stock today and none are excited about the name. (Image: CNBC)

Today’s analyst action on MGM stock includes two downgrades and a resumption of coverage from Credit Suisse with a tepid “neutral” rating. In restarting coverage of shares of the Bellagio operator, analyst Ben Combes slashed the bank’s price target on the casino stock to $15 from $34, expressing a preference for rival Las Vegas Sands (NYSE:LVS). That forecast is below the $16 handle MGM stock sports at this writing.

Bank of America is similarly gloomy on the name, downgrading it to “underperform” from “neutral,” citing what’s likely to be a long road back for Las Vegas following the COVID-19 pandemic. MGM is the largest operator on the Strip.

While now the cycle is over, we believe that the Strip faces a long recovery ahead given 1) its reliance on air travel, 2) a lack of hotel and citywide compression from groups, conventions and large scale events, 3) high price transparency/low pricing power exacerbated by an over-reliance on OTAs and 4) comparatively high fixed costs and operating leverage,” said Bank of America in a client note.

Analysts are almost universally expressing preferences for gaming companies with major Macau footprints, such as LVS, or regional operators over those relying on the Strip for the bulk of revenue. That thesis is rooted in the notion that gamblers, although eager to return to the tables and slots, aren’t anxious to get on planes to fly to Las Vegas and are more likely to go casinos that are within driving distance of their homes.

Other Issues

Bank of America notes that on the Strip, MGM is more dependent on room revenue than Caesars Entertainment (NASDAQ:CZR), which is problematic for the Mirage operator, because only a few of its 10 venues will be part of the initial reopening.

“In Las Vegas, MGM is more reliant on its room revenues and less reliant on the casino block than CZR, while it will likely face strong competition on the high-end from smaller footprint/well-capitalized competitors like WYNN and LVS,” said the bank.

Bank of America is, however, bullish on MGM’s landlord: MGM Growth Properties (NYSE: MGP). The research firm lifted its rating on the real estate company to “buy” from “neutral,” citing strong tenant liquidity.

The bank adds that as MGM reduces its stake in the real estate investment trust (REIT), something it did earlier this week, MGP will attract a broader base of investors.

More Bearish Chatter

Jefferies analyst David Katz accounted for one of the two MGM downgrades today, lowering his rating on the stock to “hold” from “buy” while paring his price forecast to $17 from $22.

Katz said that with markets already having priced in the presence of activist investors involved with the stock and monetization of nearly all the operator’s Las Vegas property assets, there aren’t many near-term catalysts left to spark MGM stock higher.

The analyst is forecasting a narrow trading range for the shares over the coming months.