MGM Stock Sporting Attractive Risk/Reward Says Analyst
Following a period of inaction for the most of this year, shares of MGM Resorts International (NYSE: MGM) have recently surged, as seen by gains of 7.53% in the last week and 13.51% in the last month.
JPMorgan's Joseph Greff, who recently restated a "overweight" recommendation on MGM with a price target of $57 in a note to investors, is among the analysts who are optimistic on the stock. That suggests a gain of around 24% from the closing on July 11. Greff noted that while the risk/reward ratio offered by MGM stock is currently "favorable," the shares have been hampered for the majority of this year by "terrible sector investor sentiment shaped, primarily, by macro/consumer concerns."
On the Las Vegas Strip, where MGM is the biggest operator, those worries aren't yet apparent. Although business is still booming there, some of the worry investors have shown this year about the company can be attributed to a slowdown in some regional gaming markets where customers have cut back on spending due to sticky inflation. When MGM releases its second-quarter earnings on July 31, it may mention the more encouraging signs of stability in regional casino markets.
Some Interesting Projects Are Not Reflected in MGM Stock
It is well known that the first casino hotel in Japan is anticipated to open in 2030 and that MGM is developing an integrated resort in Osaka.
Even if it is now outdated, Greff maintained that the present stock price does not fairly reflect the Osaka project or the potential for MGM to establish a gaming facility in the United Arab Emirates (UAE) in the future.
The expert noted that MGM can manage a project there and its commitments in Osaka, but he acknowledged that there are no guarantees regarding what could occur in the UAE because no official gaming regulations have been developed there.
"We do not think these projects are currently reflected in its shares, but we suspect that MGM’s funding contributions from free cash flow in Japan may entice investors to ascribe some equity value sometime during 2024,” wrote the analyst.
According to Greff's "conservative" estimations, Osaka could increase the value of MGM shares by up to $18 per share, while a "hypothetical" gaming project in the UAE would be accretive to MGM stock.
The MGM balance sheet was praised.
Due to its lengthy history of having one of the strongest balance sheets in the business, MGM has been able to pursue acquisitions to strengthen its digital gaming division while also being a keen buyer of its own stock.
According to Greff, the business has $622 million via MGM China and $2.4 billion in cash on hand. MGM has 16.6% of its market capitalization in cash on hand, even if the Macau cash is not included.
“A slowing macro and related consumer retrenchment in both the US and China have been discussed ad nauseam, but we think MGM has embedded resilience with its higher-end leisure-customer exposure and a diversified earnings base that attracts significant non-gaming demand,” concluded the analyst.
