Deutsche Bank analyst Carlo Santarelli chopped $5 off his price target for MGM Resorts International, bringing it down to $52 per share. The stock was trading at $39.49 a share at the time of Santarelli’s September 30 investor note, and closed Tuesday at $38.62.
The analyst began by noting that shares of MGM have, as he put it, struggled in 2024, especially compared to their peers’. He said MGM faced challenging year-over-year comparisons on the Las Vegas Strip and concerns about Strip trends.
While Santarelli thought the latter neither new nor unforeseen, he opined that trends in all-important baccarat play have gone soft “and this dynamic has not changed in a material way.” In August, overall Strip baccarat winnings were down 34 percent, despite a 12 percent higher handle.
Santarelli wrote that it’s plausible MGM shares will battle to move upward, “or until investors garner greater comfort in the 2025 Strip outlook.” Even so, he viewed MGM as an “inexpensive longer-term growth story, with several organic and idiosyncratic growth drivers” in the form of Japan, New York City, and BetMGM. He also liked its balance sheet and consistent cash flow.
He expected September numbers to be “challenged,” thanks to one fewer weekend in the month, plus difficult comparisons to September 2023. Part of the concern was that September 2024 would end on a weekend, meaning that the last two days’ slot-revenue tally would be rolled into October, per Nevada Gaming Control Board practice. Santarelli anticipated that September gambling revenue for MGM would fall 5.5 percent, but that the company would gain Las Vegas market share.
The analyst called the third quarter to date “uneven,” marked by a four percent gain in revenue per available hotel room. However, he discerned a “flattish September” for the Strip. He also warned of fourth-quarter headwinds, driven by “presumably weaker” numbers for the Las Vegas Grand Prix.
Deutsche Bank made significant revisions to its projections for MGM. Strip third-quarter cash flow was shaved from $759 million to $744 million, while the fourth-quarter forecast was moved down from $795 million to $759 million.
“That being said, we do not believe 4Q24 trends in Las Vegas are as ominous as most believe,” Santarelli penned. He declared bookings to be stable, even though checks of room rates and online travel agencies indicated “a more draconian outlook.”
“In fact,” he continued, “we believe the majority of the negative sentiment around Las Vegas is largely due to the comp stack challenges, which were evident months ago, more so than a distinct change in the cadence of demand.”
Santarelli observed that MGM’s casino winnings were up 2.4 percent for the year so far, with an 11 percent surge in September expected, the previous year having been dampened by an $80 million hit in the form of a ransomware attack. He predicted net revenue for the third quarter of $959 million or $24 million more than Wall Street’s model.
On its China flank in Macau, MGM is starting to see some slippage in market share, having gone from 15.9 percent early in 2024 to 14.7 percent over the summer months. Santarelli projected $1 billion in Macau-derived gambling revenue, $107 million below Wall Street’s expectations.
