With the Las Vegas Strip moving much closer to normal conditions and MGM’s (NYSE:MGM) sports betting business, BetMGM, showing signs of rapid growth, I remain very bullish on MGM stock. BetMGM is a joint venture between MGM and U.K.-based GVC Holdings.
MGM’s shares, with a trailing price-earnings ratio of 13.4, are meaningfully undervalued at their current levels.
According to The New York Post, Las Vegas casinos “swarmed with crowds” over the March 13 weekend.
The surge came after Nevada Governor Steve Sisolak issued an order allowing the state’s casinos to raise their capacity to 50% from 35% as of Monday, March 15.
The news is certainly positive for MGM’s financial outlook. As Americans get vaccinated over the next couple of months MGM’s financial performance should improve, particularly in Las Vegas. Elsewhere, BetMGM is already making significant headway.
Also very bullish for MGM is the progress that BetMGM has already made.
A Closer Look at MGM Stock
As of September 2020, BetMGM’s share of the important New Jersey sports-betting market rose to 18%, up nine percentage points over its level in January 2020.
Additionally, as of November, the BetMGM app was the third-ranked sports betting app in New Jersey, trailing only DraftKings (NASDAQ:DKNG) and William Hill (OTC:WIMHY), which was purchased by Caesars Entertainment (NASDAQ:CZR) in September.
“BetMGM has established itself as a top-three leader in its markets,” MGM CEO Bill Hornbuckle said.
On March 15, Jefferies analyst David Katz upgraded MGM to “buy” from “neutral.”
“[W]e expect shares to rerate on an improved macro and continued strength in execution,” Katz wrote according to Seeing Alpha. “With forthcoming stimulus and further vaccine roll-out, we expect strong pent-up demand for leisure travel and particularly group travel.”
Argus raised its rating on MGM to “buy” from “hold” on Feb. 23.
“We expect demand among leisure travelers to recover this summer and look for a rebound in the company’s convention business later in the year,” analyst John Staszak wrote.
Like Katz and myself, he is bullish on the company’s efforts to boost BetMGM.
MGM is aggressively marketing and improving BetMGM, just as I expected they would. A big part of that is its partnership with Buffalo Wild Wings. BetMGM should get a huge boost as many more states legalize sports betting.
Meanwhile, Morgan Stanley believes that MGM’s share of international visits to Las Vegas could increase after Las Vegas Sands (NYSE:LVS) sold its casinos in the city.
The Bottom Line on MGM Stock
As I predicted last October, the $1 billion investment that IAC (NASDAQ:IAC) made in MGM last year has enabled the company to become a big player in sports betting.
I wrote last summer that MGM’s casino business should return to normal by mid-2021, pointing out that it had enough cash and operational savvy to stay afloat until the vaccines rolled out.
Indeed, the company looks poised to not only survive but thrive, making MGM stock a definite buy at this point.
On the date of publication, Larry Ramer was long MGM.
Larry has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, Plug Power, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.
