MGM Resorts International (NYSE:MGM) had a rough year last year. However, MGM stock reflects optimism that the decline in U.S. gambling is over, especially in its Las Vegas Strip properties.
In the past year, MGM stock has risen more than 155% as of March 12. It is up about 71.5% in the past six months and is already up 23.7% year-to-date.
This is despite all the losses that the company announced on Feb. 10 for both Q4 and 2020. The company’s net revenues fell 53% to $1.5 billion. Moreover, its consolidated operating loss was $364 million. Its net loss for the quarter was $448 million.
But these results are better than $1.1 billion in revenue during Q3 and the related net income loss of $535 million. In other words, its Q4 operations improved a good deal.
Outlook Looks Good for Gambling Operations
Analysts seem pretty ebullient about MGM’s prospects. For example, Seeking Alpha reports that the average analyst forecast for 2021 is $8.75 billion in revenue. That is 68.8% better than the $5.2 in net revenue MGM made in 2020.
Moreover, these analysts believe that revenue in 2022 will rise 30.4% to $11.41 billion. Much of that assumes that restrictions on gatherings at casinos will be lifted and that people will feel more comfortable in going gambling.
More states are opening up to sports gambling. BetMGM is the company’s sports betting and igaming app that it started in 2018. It is now launched in seven states. The company has pledged as much as $450 million in marketing BetMGM in a quest to gain significant market share. In its Q4 earnings release, MGM said that it expects BetMGM to be available in 20 states by the end of 2021.
Reuters points out that the company expects demand will pick up significantly later in the year. In addition, Reuters wrote that last month MGM retracted its $11 billion offer in January to buy the parent company of the UK gambling firm Ladbrokes.
The idea was that it would combine with BetMGM and the two would take the U.S. world of sports gambling by storm. But Entain rejected the offer and so MGM walked away, not willing to raise its offer price.
As of March 15, MGM stock had a $19.3 billion market capitalization. Based on its 2021 forecast sales, the stock trades at about 2.2 times 2021 forecast sales, assuming they reach $8.75 billion. Moreover, by 2022, MGM stock trades for just 1.69 times 2022 revenue as well.
These are pretty attractive valuation metrics. Just a small increase to 2.2 times 2022 sales raises MGM stock’s value to $25.1 billion. That represents a potential gain of 30%. In other words, the stock would be worth $50.72 per share or 30% higher than its recent price of $38.98.
Morningstar.com has a history of the annual price-to-sales history of MGM stock. Over the past six years, the average annual multiple was 2.04 times. That implies a potential price gain of just 20.7% or $47.05.
Therefore, the stock is worth somewhere between $47.05 and $50.72 per share, or 21% to 30% above the recent price.
What to Do With MGM Stock
TipRanks.com reports that 1o analysts who have written about MGM stock in the last three months have an average target price of $36.33. The high price is $42 per share. The average represents a potential drop of topping 6%.
In addition, Marketbeat.com indicates that 25 analysts have a consensus price target on MGM stock of $25.82, or well below current prices.
Basically, none of these analysts don’t think MGM stock will do very well this year. All the more reason, as a contrarian, you might consider that it will, just as I predict.
I suspect that a patient investor in MGM stock will do well over the next year. My price target is between $47.05 and $50.72 per share, or 21% to 30% above the recent price.
On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article.