Why Wall Street analysts think MGM has huge upside potential
Must-know: MGM Resorts' 3Q14 earnings overview (Part 8 of 9)
Positive outlook
MGM Resorts (MGM) reported 3Q14 earnings with solid performance in the Macau market. Analysts rated MGM’s stock after its 3Q14 earnings release.
The above chart shows the ratings given by some of the Wall Street analysts or brokers. Ten brokers rated MGM’s stock as “buy” or “overweight.” The mean target price of these ten brokers is $30. This is 36% higher than its closing share price of $21.94 on November 7. However, the brokers’ mean of price targets released immediately after the 3Q14 results for companies like Las Vegas Sands (LVS) and Wynn Resorts (WYNN). They had an upside of 12% and 11%, respectively.
Investors who want to invest in the casino space could invest in an exchange-traded funds (or ETFs) like the Consumer Discretionary Select Sector SPDR Fund (XLY) and the Markets Vector Gaming (BJK).
Broker ratings
Credit Suisse believes that MGM China’s strong cash flow generation will increase with a new project. The project will more than double its capacity in two years. Currently, the new project isn’t reflected in the price.
According to J.P. Morgan, “We forecast an 11% EBITDA CAGR through 2017 on fair assumptions related to growth in Las Vegas, performance at its Macau Peninsula property, and contributions coming from new projects in Cotai and Maryland, with a steadily improving balance sheet/leverage position over this timeframe. We reaffirm our Overweight rating and $30 price target and continue to view MGM as having the best risk-reward of a tough bunch (Macau stocks), given its positive operating momentum in Las Vegas and its less than severe sensitivity to Macau swings—both to EBITDA and valuation multiples.”
In the next part of this series, we’ll discuss why investors could bet on MGM stocks.
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