Shares of MGM Resorts International (NYSE: MGM) have fallen 11.32% year-to-date, a stark contrast to the 20.8% and 12.3% gains respectively recorded by the S&P 500 and the S&P Consumer Discretionary Select Sector index, where the gaming stock is categorized. Despite a recent uptick of 9.18% over the past month, MGM’s underperformance has prompted investor hesitation, particularly amidst concerns that gross gaming revenue (GGR) in Nevada is on the decline. A new report by Carlo Santarelli, an analyst from Deutsche Bank, underscores this apprehension, highlighting a significant drop in baccarat winnings for Strip operators, with MGM being the largest. In August, baccarat win on the Strip plunged 34%, a trend that hasn’t materially improved.
Santarelli has lowered his price target for MGM from $57 to $52, which, despite the downward adjustment, still represents a potential upside of 31.2% from the latest closing price. He also noted that Las Vegas casino operators, including MGM, are unlikely to deliver robust September GGR figures, owing to the month having one fewer weekend than in 2023. He characterized September’s performance as “flattish” and described the third quarter overall as turbulent for casinos in the U.S.
Nevertheless, MGM stock could offer long-term rewards for patient investors due to its compelling growth profile and solid balance sheet. This financial strength has enabled MGM to consistently buy back its own shares. Santarelli views MGM as an affordable long-term growth opportunity, with several organic and idiosyncratic growth drivers. Key catalysts include BetMGM, the company’s integrated resort in Osaka, and efforts to secure a downstate gaming permit in New York, potentially transforming Yonkers’ Empire City Casino into a traditional Las Vegas-style casino.
Further enriching this growth narrative, MGM recently announced its pursuit of a gaming license in the United Arab Emirates (UAE), where it has allocated 150,000 square feet of space for a casino at a currently non-gaming property. Additionally, the company’s MGM China unit is expected to bid for a casino permit in Thailand.
Despite expectations that third-quarter results for Strip operators will be underwhelming, there’s a possibility that the investment community is overly pessimistic about MGM’s current quarter. This could mean that expectations are low, thereby setting the stage for MGM to potentially outperform. “We do not believe 4Q24 trends in Las Vegas are as ominous as most believe,” noted Santarelli. “In fact, we believe the majority of the negative sentiment around Las Vegas is largely due to comp stack challenges identified months ago, rather than a clear shift in demand patterns.”
MGM boasts one of the strongest balance sheets in the industry, with $2.41 billion in cash and cash equivalents by the end of the second quarter, positioning it favorably for future growth and resilience.