MGM Resorts Reinstated at J.P. Morgan With Neutral Rating

J.P. Morgan reinstated its coverage of casino operator MGM Resorts with a neutral rating and $18 price target.
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J.P. Morgan on Friday reinstated its coverage of MGM Resorts International  (MGM) - Get Report with a neutral rating and an $18 share-price target and predicted that the Las Vegas Strip would slowly recover from the coronavirus shutdown.

Shares of the Las Vegas casino and hotel operator at last check were down 8.7% to $15.36.

Analyst Joseph Greff said in a note to clients that the neutral rating follows a period of restriction. Prior to the restriction, J.P. Morgan carried an overweight rating and a year-end 2020 price target of $40 a share.

"We forecast a slow recovery on the Las Vegas Strip, a market that is dependent on both airlift and convention and group-related travel and critical to MGM," Greff said. 

"Overall, we think the pace of visitation and spend recovery in Las Vegas will be much slower than in either the Macau [special administrative region] or domestic regional casino markets."

Greff added that "only the cruise-line sector may be more challenged than the Las Vegas Strip over the next year or two."

Last month, MGM warned of a nearly 30% drop in its first-quarter revenue compared with a year earlier, as it was forced to shut down its properties due to the coronavirus outbreak.

"Because we see a stronger recovery in Macau and drive-to U.S. regionals," Greff said, "we prefer to overweight Las Vegas Sands  (LVS) - Get Report, Wynn Resorts  (WYNN) - Get Report, Melco Resorts & Entertainment  (MLCO) - Get Report (each significantly exposed to Macau/Asia gaming markets) as well as regional operators Boyd Gaming Corp.  (BYD) - Get Report and Penn National Gaming  (PENN) - Get Report."

For yield, Greff said "we like the stability of overweight-rated MGM Growth Properties  (MGP) - Get Report rent stream."

MGM said Thursday that first-quarter revenue dropped 29% to $2.3 billion, while analysts surveyed by FactSet had called for $2.45 billion in revenue.

Acting MGM Chief Executive Bill Hornbuckle said during Thursday's earnings call that the Bellagio and New York-New York casinos will likely be the company's first two properties to reopen once the Las Vegas Strip is cleared for business. 

The South China Morning Post reported Friday that Macau's casinos reported a record loss, with gross gambling revenue falling 97% to $95 million in April from a year earlier.