JP Morgan Analyst Sees Bright Investment Future for MGM Resorts

MGM Resorts International is drawing attention with its investment potential, a report by JP Morgan analyst Joseph Greff said. In a note to investors, Greff stressed the good risk/reward profile of MGM’s stock and confirmed his Overweight rating while setting a price target of $57 per share. 

MGM Resorts’ Strong Cash Flow and Strategic Moves Impress JP Morgan Analyst

Greff said he was optimistic because the company has been doing well in key markets such as Las Vegas, Macau, and select US regional casino locations. He mentioned MGM’s strong cash flow, solid balance sheet, and what he called “a host” of developments that Wall Street is not appreciating yet, as reported by CDC Gaming. While acknowledging there are a lot of challenges in the sector due to broader economic concerns, Greff expressed confidence in his positive view.

JPMorgan’s room-rate research suggests MGM’s fundamentals are good for non-gambling revenue as well as cash flow. A key driver behind this stability is MGM’s joint venture with Marriott International. Since the partnership started 140,000 rooms have been booked through Marriott surpassing underwriting expectations by 75%.

This collaboration has allowed MGM to reduce its dependence on lower-end casino customers, which Greff sees as a strategic advantage given the prevailing consumer risk in that segment. Higher hotel rates have been compensating for the slowing gaming volumes.

Following positive feedback about MGM’s newly renovated Mandalay Bay Convention Center, management is now indicating next year could see more growth within its meetings business with projections of 29% year-on-year along with higher midweek hotel occupancy – especially in April – driving a favorable outlook for MGM’s hospitality revenue.

MGM Resorts Sees Stabilization and Growth Ahead, Analyst Reports

Regionally speaking, it appears as though most of the decline may be stabilizing if not turning slightly positive heading into the second quarter. As the anniversary of last September’s cyberattack approaches, Greff anticipates favorable revenue comparisons for the third quarter.

In Macau, Greff thinks MGM can keep a sustainable market share of around 15%. Also, MGM China has $2.4 billion cash in its balance sheet, including $622 million in Macau, plus a $3.8 billion revolving line of credit, $2.3 billion of which is allocated domestically. 

MGM China has also resumed dividend payments with $94 million going back to the Las Vegas parent. However, Greff did not include any further stock repurchases in his projections for the remainder of the year.

Looking ahead, Greff is confident that MGM has the financial capability to undertake significant projects including Osaka in Japan and the Middle East. However, he warns that the Middle Eastern market is highly competitive and currently lacks gaming regulations thus significant upside could be limited until more clarity emerges.