MGM Stocks Upgraded to Neutral by Goldman Sachs

MGM Stocks Upgraded to Neutral by Goldman Sachs

Renowned New York banking institution Goldman Sachs has upgraded its stocks rating for US-based casino giant MGM Resorts International from “sell” to “neutral.”

Fresh off the back of MGM’s huge solar energy investment announcement earlier this month, this is more good news for the company after a year of struggles – mostly down to the COVID-19 pandemic. Despite many steps towards recovery, overall revenues in Q1 2021 were still down 27% on the same months just before the pandemic hit in 2020.

Goldman changed its opinion on MGM stocks to “sell” in September last year after casinos were shuttered across the US and the wider world for many months.

Macau Worries

In this quarter, things have been looking up for casino operators in the US. MGM saw an 11% increase on gaming revenue in May 2021 compared to 2020. Government stimulus checks and a fast-returning customer base in Las Vegas have seen an unexpectedly quick recovery, which could have had an influence on Goldman’s upgraded rating.

However, MGM also runs two resorts in the global gambling hub and Chinese Special Administrative Region of Macau. Recovery there has been nowhere near as fast as Sin City’s.

That’s because many of the visitors come from Hong Kong and the Chinese mainland, and authorities have been slow to negotiate travel corridors and arrangements between the territories.

Credit rating agency Fitch recently affirmed its negative outlook for MGM’s Chinese division, MGM China Holdings.

Sales and Growth

On the other hand, MGM’s US-facing online platform BetMGM is seeing positive growth signs. It’s rapidly gaining ground on DraftKings, in second place on the list of the US’ most popular online sports betting options in legal states.

Several large investors have also added more MGM shares to their portfolios, including BlackRock Inc. and Canada Pension Plan Investments. Between them, they own over $1.3 billion in shares in the gambling giant, including about 2% added just this year.

MGM has also restructured some of its assets on the Las Vegas strip, selling off the Aria and Vdara hotels to investment group Blackstone while buying the other half of the land the property sits on – the CityCenter Holdings development.

The land – and the rest of the development outside the two hotels – was completely bought by MGM for $2.125 billion. That was only half the valuation, as the company already owned the other 50%.

The two hotels were sold to Blackstone for $3.8 billion in cash, and MGM will lease back and operate the hotels for an annual rent of $215 million.

“This transaction reflects our high conviction in Las Vegas and our strong partnership with MGM Resorts. CityCenter is a best-in-class resort and complementary addition to our portfolio of high-quality assets on the Strip,” said the Head of US Acquisitions for Blackstone Real Estate, Tyler Henritze.

The transactions are finalized but not expected to close until Q3 2021.

This deal will leave MGM with roughly $1.7 billion in cash to add to its stockpile. MGM is already one of the most liquid companies in the gambling sector, having sold both its Mandalay Bay resort and the iconic MGM Grand (both involving Blackstone) for some $4.6 billion last year.

That could have also contributed to Goldman’s increasing confidence in the operator’s outlook.

As for the other key player in this story, Blackstone, it is now one of the biggest stakeholders in the Las Vegas strip, owning the land beneath the Bellagio and the Cosmopolitan and holding part ownership of Mandalay Bay and the MGM Grand.

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