Posted: July 28, 2021, 11:12 a.m.
Last update on: July 28, 2021, 11:12 a.m.
Shares of MGM Resorts International (NYSE: MGM) are receiving help today from an upgrade from Goldman Sachs.
The venerable Wall Street bank raised its rating on the Mandalay Bay operator to “neutral” instead of “sell” while raising its price target on the games company to $ 43, which implies a hike in about nine percent from current levels.
We are also putting MGM to Sell Neutral following the recent pullback and stronger market share in online sports betting / iGaming and a faster rebound in Vegas more than offset our concerns about the relative pace of the recovery. According to the report published by Goldman Sachs.
The bank demoted MGM to “sell” last September, citing what it expected for a slow recovery from the coronavirus pandemic in Las Vegas. However, the combination of government stimulus checks and pent-up demand is proving successful for Sin City, and the domestic casino hub’s rebound trajectory is surprisingly robust, proving the naysayers wrong. This is vital for MGM’s investment thesis as the company is the largest Strip operator.
Inside the Goldman MGM rating
While Goldman Sachs acknowledges that MGM saw an 11% increase in gaming revenue in May on an adjusted basis, the bank also highlighted Macau’s weakness.
MGM’s MGM China unit operates two integrated hotel complexes in the world’s largest gaming center, and the recovery there has been painfully slow. July’s gross gaming revenue (GGR) appears to be heading in the right direction, but a recent spike in mainland China’s COVID-19 cases coupled with a still-missing travel bubble with Hong Kong is hampering the near-term outlook. Goldman says the Macau exposure prevents it from raising MGM to a “buy” rating.
Goldman has however strengthened its earnings before interest, taxes, depreciation, amortization and restructuring or rent costs (EBITDAR) while highlighting the operator’s iGaming and online sports betting footprint through its BetMGM unit.
BetMGM, a 50/50 joint venture with UK-based Entain, is the third-largest online sports betting operator in the United States, but it is rapidly gaining market share and poses a significant threat to DraftKings for second place. In the higher margin online casino space, BetMGM is one of the dominant players in each of the states in which the platform is available.
Goldman mentions MGM’s return on capital plans
Goldman also highlighted the potential for MGM to return capital to shareholders. At the height of the coronavirus pandemic last year, the Bellagio operator abandoned a share buyback program and reduced its annual dividend to a barely noticeable penny per share.
At the end of the first quarter, it had $ 6.2 billion in cash and total cash of $ 9.7 billion. This makes it one of the most cash-rich companies in the industry, and it has leverage to raise more capital if needed.
The company continues its pursuit of thin assets, recently announcing sale and leaseback deals for Aria and Vdara on the Strip, but it has not publicly discussed plans to raise its dividend or increase share buybacks. .