MGM Resorts International's Strong Liquidity and Capital Structure Make It a Buy, Says JP Morgan Analyst

JP Morgan analyst Joseph Greff maintains MGM Resorts International MGM with an Overweight and raises the price target from $54 to $55.
The analyst sees value in MGM's shares and believes the company possesses an attractive combination of Las Vegas Strip exposure, Macau recovery, a path to Digital EBITDA profitability, and a strong liquidity and capital structure position, which should allow MGM to shrink its share count and invest in its domestic land-based casinos.
Las Vegas Strip is a market that should benefit from continued midweek group and convention business and a robust event calendar, where visibility extends through early next year with the Superbowl in 1Q24.
MGM's share of Macau is more meaningful to the equity, looking at its stake in MGM China.
MGM has a path to Digital EBITDA profitability, like other industry digital operators.
MGM's strong liquidity and capital structure position should allow MGM to shrink its share count and invest in its domestic land-based casinos.
The analyst sees the shares' valuation as baking in too much negativity regarding the sustainability of strong LV Strip and U.S. trends and the impact of a murky macroeconomic environment.
The analyst raises his 2023-2024 Macau estimates and 1Q23 U.S. Regionals EBITDAR estimates. He views these forecasts and his unchanged LV Strip projections as reasonably based and allowing for potential positive revisions.
In his view, MGM trades relatively low and attractive multiples at current levels and on a lease-adjusted EV/EBITDAR basis.
Looking at another way and adjusting for its high excess domestic cash balance and its stakes and ownership in Macau, BetMGM, and LeoVegas, MGM's share price implies that its domestic casinos are trading at an 11% free cash flow yield which is appealing.
Price Action: MGM shares closed lower by 0.85% at $42.99 on Wednesday.
Photo via Wikimedia Commons

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