J.P. Morgan analyst Joseph Greff, in a midnight investor note, called the risk/reward scenario on MGM Resorts International stock “favorable.” He maintained an Overweight rating on MGM and a price target of $57 per share. MGM was trading at $49.31 a share at the time.

Greff’s optimism stemmed from “reasonably good fundamentals” in Las Vegas, Macau, and U.S. regional casino markets. He also cited good cash flow, strength in the MGM balance sheet, and an “enviable” slate of developments that he said Wall Street is disregarding.

The analyst said MGM’s pluses had been outweighed by “terrible sector investor sentiment shaped, primarily, by macro/consumer concerns.” He was, he added, “reasonably comfortable” with his own assessment, which came with a low level of risk.

Based on J.P. Morgan room-rate research, Greff said MGM’s fundamentals continued to be sound, which portended well for non-gambling revenue and cash flow. In addition, after only four months, MGM’s partnership with Marriott International was bearing fruit.

In that time, 140,000 MGM rooms have booked through Marriott and the project was 75 percent ahead of underwriting expectations, according to management. The influx of Marriott customers had enabled MGM to “become less reliant on the lower-end of its casino database, which we view as a key benefit, as lower-end consumer risk remains prevalent and higher hotel rates are offsetting decelerating/moderating gaming volumes.”

Also, the recent rollout of the renovated Mandalay Bay Convention Center should further boost MGM’s meeting business, said to be 29 percent higher year over year looking ahead. Midweek hotel rates, Greff observed, stood to benefit from higher occupancy levels, with April exceptionally strong in that regard.

Regional casino business has stabilized, according to MGM, enabling the second quarter to trend upward toward its close. Looking forward to the anniversary of last September’s cyberattack on MGM, Greff said the third quarter should see easy revenue comparisons for the company.

Of Macau, Greff only said he believed a market share in the vicinity of 15 percent was sustainable in the Chinese enclave.

Turning to the balance sheet, the analyst noted that MGM has $2.4 billion cash on hand (plus another $622 million in Macau). The company also has a revolving line of credit on the order of $3.8 billion, $2.3 billion of which is domestically targeted.

MGM China has resumed dividend payments, sending $94 million to its Las Vegas parent. However, Greff didn’t factor any additional stock repurchases by central management into his calculations for the remainder of the year.

With groundbreaking in Osaka, Japan, still a year away, Greff nonetheless thought that MGM is well positioned financially to undertake both that and further development in the Middle East, perhaps in Dubai. Of the latter, he cautioned that it was a highly competitive situation and that no gaming regulations are in place.

Greff attributed $18 a share in value to Japan and another $9 million to a “hypothetical” Middle East project. These assumptions were predicated on a “conservative,” 12 percent return on investment. He forecast $9 billion in investment in Japan and half that amount in the Arabian peninsula.

“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,” Greff wrote.

In conclusion, Greff called risks to the company merely generic. “A slowing macro and related consumer retrenchment in both the U.S. 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.” He also saw little threat of an external corporate takeover.

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