Will MGM Resorts (MGM) Stock Be Helped as JPMorgan Sees 34% Upside?
NEW YORK (TheStreet) -- Shares of MGM Resorts Int'l (MGM) - Get Report closed lower by 0.88% to $21.51 Thursday even though JPMorgan sees about 34% upside from Macau and the company's U.S. real estate, Barron's reports.
JPMorgan reaffirmed its "overweight" rating and $29 price target on the stock and said the sum of the company's diverse geographic holdings is not reflected in its stock price.
MGM shares are down almost 5% this year vs. a flat performance in the S&P's 500 index.
Competitors have also outpaced the company's performance, such as Wynn Resorts (WYNN), which is up almost 28% this year and Las Vegas Sands (LVS), which is up nearly 2%, Barron's noted.
"From a valuation perspective, if one backs out MGM's ownership stakes in MGM China Holdings (MCHVF) and Overweight-rated MGM Growth Properties (MGP), MGM's 2016E EV/EBITDA valuation multiple is a relatively low 8.8x, and looking out to 2017, the valuation multiple is 8.0x," JPMorgan wrote in a note.
The company's Bellagio and MGM Grand resorts, which account for 46% of total non-Macau, non-REIT property level EBITDA, are being valued as marginally above average regional gaming assets, the firm noted.
This "to us, seems a little harsh, if not silly, given that the real estate EBITDA of MGM's other properties that are in MGP (7 LV Strip, 1 Detroit, and 2 Mississippi assets) are being valued at 14.6x and 14.2x 2016E and 2017E EV/EBITDA, respectively," JPMorgan added.
Additionally, the firm sees 3% to 4% growth in Las Vegas strip revenue and anticipates gains associated with MGM's profit plan. JPMorgan is also encouraged by recent asset sales, which reduce the company's balance sheet leverage.
"We think neither is reflected in the stock at 10.5x 2016E and 8.7x 2017E EV/EBITDA valuation levels," the firm added.
Separately, TheStreet Ratings Team has a "Hold" rating with a score of C on MGM Resorts stock.
The primary factors that have impacted the rating are mixed. The company's strengths can be seen in multiple areas, such as its expanding profit margins and solid stock price performance.
However, the team also finds weaknesses including deteriorating net income, disappointing return on equity and generally higher debt management risk.
Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author.
You can view the full analysis from the report here: MGM
