BofA Upgrades MGM Resorts: 'Could Become A Story Stock'

MGM Resorts International MGM shares traded higher on Monday after the company landed an analyst upgrade as it continues to roll out its BetMGM sports betting app.

The Analyst: Bank of America analyst Shaun Kelley upgraded MGM from Underperform to Neutral and raised his price target from $25 to $35. Kelley also downgraded Las Vegas Sands Corp. LVS from Buy to Neutral and reiterated his $57 target price.

The Thesis: Kelley said his ratings adjustments are based on his increasingly bullish outlook for a recovery in Las Vegas and a booming U.S. online sports betting market. At the same time, Kelley is growing increasingly cautious on the outlook for Macau, China.

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“In Macau, we see little change to the near-term low visibility regime, especially with the recent slowdown in China travel from increased COVID cases,” Kelley wrote in the note.

He said Las Vegas Sands is highly exposed to mass-market gamblers in Macau, which should be a long-term growth driver for the stock. However, in the near term, mass-market revenue is more exposed to travel visa restrictions and the need for widespread vaccinations.

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Kelley is bullish on MGM’s positioning to capitalize on a strong recovery in Las Vegas in the second half of 2021. In addition, he said MGM has the potential to become a highly desirable “story” stock due to its brand strength and its BetMGM sports betting app.

Despite the potential bullish catalysts, Kelley is still holding back on a Buy rating due to MGM’s incredibly complex corporate structure, unclear strategic path for its key assets and relatively high reliance on rooms and other non-gaming revenues.

Benzinga’s Take: It sounds like Kelley is mostly skeptical of MGM’s structure and long-term strategy. New CEO William Hornbuckle has been at the helm now for less than a year, and maybe his new management team can reassure skeptical investors and analysts by putting together a simple, clear long-term plan.

(Photo by Erik Mclean on Unsplash)