Goldman Sachs Cashes Out Of MGM Stock, Recommends Wyndham And Las Vegas Sands

For MGM Resorts International MGM, Las Vegas business hasn’t been booming the way some investors had hoped, prompting one Wall Street analyst to take a closer look at the stock.

The Analyst

Goldman Sachs analyst Stephen Grambling downgraded MGM from Buy to Neutral, removed the stock from Goldman’s Conviction Buy list and lowered his price target from $40 to $35.

The Thesis

Grambling said there’s been a lot to like about MGM over the past year, but several key components of the bull thesis haven’t played out well for the company. Despite better-than-expected gross gaming revenue from Las Vegas, Grambling said delays and disruption at Park MGM and a slow recovery at the Mandalay Bay have weighed on the company’s bottom line.

In addition, competition in the Atlantic City market isn’t helping the picture. The Oceans Resort Casino and the Hard Rock are both on schedule to open in Atlantic City by the end of the summer.

“We remain constructive on the Las Vegas backdrop, but see limited near-term catalysts and see more limited upside with the shares trading at 11.8x NTM EV/EBITDA on our downwardly revised estimates (vs. historical five-year average of 11.5X),” Grambling said in a note.

Alternatives

Instead of MGM, Grambling prefers Las Vegas Sands Corp. LVS, which has exposure to the relatively strong Las Vegas market but has a much larger share of the high-growth Macau market as well.

In addition, Grambling likes Wyndham Hotels & Resorts Inc WH, which replaced MGM on Goldman’s Conviction Buy list. Grambling says recent transactions have muddied the water a bit for Wyndham, but strong performance in the mid-scale and economy segments, as well ads potential guidance raises as the long-term picture gets clearer should trigger multiple expansion for the stock.

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