Viva MGM: BofA Raises Company's Price Target Following Las Vegas Resort Purchase

On Monday, Blackstone Inc BX announced the sale of The Cosmopolitan resort in Las Vegas for $5.65 billion. Blackstone Real Estate Income Trust (BREIT), Stonepeak and the Cherng Family Trust acquired The Cosmopolitan's real estate in the deal for $4.025 billion, while MGM Resorts International MGM acquired the casino operations for $1.625 billion.

Value Added: On Tuesday, Bank of America analyst Shaun Kelley reiterated his Neutral rating for MGM but raised his price target from $46 to $48. Kelley said the deal was neutral for MGM on an EBITDA basis, but it will be double-digit accretive for the company’s free cash flow given MGM’s cash balances.

Related Link: Experts Discuss Macau Regulatory Uncertainty: Should Investors Buy The Dip In Casino Stocks?

Kelley said the purchase of The Cosmopolitan makes financial sense for MGM in a red-hot merger and acquisition environment in the gaming space. However, Kelley said some investors may be questioning the deal given MGM has expressed interest in a potential deal with Entain and Draftkings Inc DKNG. MGM and Entain currency each have 50% ownership stakes in online sports betting and iGaming app BetMGM. Last week, DraftKings reportedly made a $22 billion buyout offer for Entain.

BetMGM Deal Coming? Kelley said BetMGM is difficult to value at this point, but his estimated $3 billion to $6.6 billion valuation suggests it could cost MGM up to $3.3 billion to take full ownership of BetMGM.

Related Link: Could DraftKings Beat MGM To Acquiring BetMGM Joint Venture? What Investors Should Know

Kelley said MGM still has more than $9 billion in cash following The Cosmopolitan acquisition.

“The use of cash is reasonable but timing could lead to some questions about MGM’s desire to revisit a full bid for Entain following last week’s DraftKings headlines,” he said Tuesday.

MGM investors will be watching closely for any updates on a potential BetMGM deal in the coming weeks.

Benzinga’s Take: Earlier this month, Wells Fargo recommended gaming investors avoid casino stocks with exposure to Macau for now in favor of stocks with exposure to Las Vegas and the U.S. online sports betting and iGaming markets. Wells Fargo named MGM its top overall gambling stock pick.

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