Why MGM Is The Top Casino Pick For Wells Fargo

Casino stocks have taken a big hit this week on fears about regulatory crackdowns in the Macau, China market. However, one Wall Street analyst said now is a great time to step in and selectively buy the dip in gambling stocks with limited exposure to China.

The Analyst: Wells Fargo analyst Daniel Politzer has initiated coverage of the following 12 casino stocks:

• MGM Resorts International MGM initiated at Overweight with a $55 price target.
• Caesars Entertainment Inc CZR initiated at Overweight with a $137 price target.
• Boyd Gaming Corporation BYD initiated at Overweight with a $92 price target.
• Red Rock Resorts Inc RRR initiated at Overweight with a $62 price target.
• Churchill Downs, Inc. CHDN initiated at Overweight with a $255 price target.
• Draftkings Inc DKNG initiated at Overweight with a $73 price target.
• Flutter Entmt ADR PDYPY initiated at Overweight with a £18,100 price target.
• Las Vegas Sands Corp. LVS initiated at Equal-Weight with a $50 price target.
• Wynn Resorts, Limited WYNN initiated at Equal-Weight with a $112 price target.
• Penn National Gaming, Inc PENN initiated at Equal-Weight with an $82 price target.
• Bally's Corp BALY initiated at Equal-Weight with a $54 price target.
• Rush Street Interactive Inc RSI initiated at Equal-Weight with a $15 price target.

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The Thesis: Politzer said MGM is his top overall stock pick.

“We like MGM, as it offers significant upside potential to an LV Strip recovery, owns 50% of the #2 USSB/iGaming platform (BetMGM), has its cleanest financial/valuation structure in the past 10 years, and a strong balance sheet with a $10B pro forma cash balance that should be revered by investors, not viewed as an overhang,” Politzer wrote in the note.

He also likes Red Rock Resorts and Caesars due to their exposure to the Las Vegas market and insulation from Macau. Wells Fargo sees the most near-term gaming growth opportunities in Las Vegas and in U.S. sports betting and iGaming.

In the longer term, Politzer said the sell-off in Macau-exposed stocks Las Vegas Sands and Wynn has created a potential value opportunity, but he will remain on the sidelines for now given the lack of clarity on the regulatory environment and China travel restrictions.

Benzinga’s Take: Investors should keep an eye out for more potential M&A deals in the online and sports gambling space in the near future. In particular, Penn National and DraftKings have both made large acquisitions in recent months as the U.S. online sports betting and iGaming business rolls out on a state-by-state basis.