MGM Stock Upgrade as Analyst Sees Sports Betting Driving Upside

Posted on: September 13, 2021, 08:13h. 

Last updated on: September 13, 2021, 12:06h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

MGM Resorts International (NYSE:MGM) stock is up 34.21 percent year-to-date, making it one of the best-performing large-cap gaming equities. But one analyst forecasts much more upside for the casino operator, driven by sports wagering.

MGM stock
The Golden Lion statue outside the entrance of the MGM hotel and casino on the Las Vegas strip, seen above. MGM stock could rise another 40 percent, says an analyst. Sports betting will be a key contributor. (Image: Las Vegas Review-Journal)

In a note to clients today, Bernstein analyst Vitaly Umansky upgraded the Mandalay Bay operator to “outperform” from “market perform,” while boosting his price target on MGM stock to $58.90 from $29.60. The new projection implies upside of 39 percent from the Sept. 10 close.

Our view on MGM during 2021 has been too conservative and we have not given MGM enough credit on the progress made in its interactive strategy through BetMGM,” said the analyst.

BetMGM is a 50/50 joint venture between MGM and Entain Plc (OTC:GMVHY). Recently, the two operators forecast the North American internet casinos and online sports wagering markets will eventually be worth $32 billion, up from $6 billion today. That’s while noting BetMGM is the leading iGaming company and second-largest online sportsbook firm in the states in which it’s operational.

Bernstein estimates internet casinos and regulated sports betting will be worth a combined $38 billion in 2030. It is noting that BetMGM is currently the top iGaming operator and number three online sportsbook provider as measured by daily active users.

Sports Betting Ebullience Running High

The arrival of football season has Wall Street enthusiastic about the prospects for gaming equities with significant sports wagering exposure, including MGM.

Football is the most wagered-on sport in the US. Adding fuel to the fire is a slew of states joining the live and legal sports betting roster, including Arizona, South Dakota, and Wyoming. BetMGM is operational in those locations. It’s also possible Connecticut, Louisiana, and Maryland joins the party prior to the end of the 2021 football season.

Analysts expect football wagering will be a key contributor to gaming operators’ third-quarter earnings reports, with substantial carry over into the fourth quarter. The final three months of the year bring the larger slice of the NFL slate, the meat of college football, along with baseball games and the arrival of the NBA and college basketball.

Specific to BetMGM, the investment community is waiting to see if MGM makes another takeover offer for Entain. With BetMGM taking off, the casino giant’s cash hoard increasing and Entain viewed as the most likely UK-based company to be acquired before the end of 2021, speculation should intensify into year-end.

Other Catalysts for MGM Stock

As noted above, MGM’s balance sheet is flush with cash, and that capital could be deployed in areas that could drive more upside for the shares.

“MGM will receive over $5 billion in net cash proceeds from its sale of MGM Springfield and City Center real estate (following MGM’s acquisition of the 50% of City Center that is owned by Dubai World) and its divestiture of its residual ownership of its captive REIT – MGM Growth Partners,” said Bernstein’s Umansky.

Last month, VICI Properties (NYSE:VICI) said it’s purchasing MGM Growth Properties (NYSE:MGP) for $17.2 billion in stock. That results in a $4.4 billion windfall and a one percent stake in the new company for MGM.