Deutsche Bank Upgrades MGM Resorts (MGM) to Buy

Deutsche Bank upgraded MGM Resorts (NYSE: MGM) from Hold to Buy with a price target of $30.00 (from $22.00). Analyst Carlo Santarelli thinks a recent pullback creates an attractive entry.

"In short, we think the risk-return here, post the 16% correction since June 30 (S&P flat) stemming from Macau fears, is compelling despite the concerns over Macau growth in the near to medium term. In our view, and based on our below Consensus MGM Macau forecasts, we think the upside in Las Vegas has been overshadowed by the negative revisions in Macau to which MGM is less sensitive than peers. We think this pullback has skewed the risk-reward favorably and provided free options on incremental value drivers, which we address in this report," said Santarelli.

"While upgrading MGM in the face of shaky Macau fundamentals is difficult, we worry that trying to bottom tick will ultimately result in missing what we believe is likely to be a compelling multi-year long trade. At the very least, we feel the LV visibility and firm/stable trends are likely to cause MGM to outperform its peers should expectations for a rebound and return to growth in Macau get further clouded. As such, we are upgrading MGM to Buy from Hold given our view that; 1) Macau fear and downward estimate revisions have had a greater impact on MGM shares than valuation analysis dictates they should, thus providing a good entry point, 2) steady and improving LV Strip fundamentals and our expectation for further upside stemming from; a) Strip RevPOR accelerating and outpacing RevPAR, b) a subtle but meaningful lower tier asset recovery with significant upward trajectory potential, and c) conservative near term flow through assumptions and more considerable out year operating leverage, and, 3) returns on regional developments are largely non-existent at current levels, while the Cotai project has been significantly discounted," he added.

For an analyst ratings summary and ratings history on MGM Resorts click here. For more ratings news on MGM Resorts click here.

Shares of MGM Resorts closed at $22.18 yesterday.

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