MGM Resorts to pop 33% as compelling value play: JP Morgan

Published Tue, Jan 9 201811:48 AM EST

MGM Resorts represents the gambling sector's most compelling option in the new year, according to J.P. Morgan. Though the company had a turbulent 2017, analyst Joseph Greff told clients that investors are underestimating MGM and that the company is likely to surpass expectations during earnings. "We believe MGM represents the gaming sector's most attractive risk/reward for 2018, as it is now the best absolute value play in gaming," wrote Greff on Tuesday. "We continue to like the stock here as we believe investor expectations are reasonably low – we'd say almost negative, but probably more in the 'I don't give a hoot' camp." The analyst, who has an overweight rating on the casino resort company, encouraged investors to consider adding exposure to MGM. Greff's $44 price target is 33 percent higher than Monday's closing price. The stock rose 15 percent over the past twelve months and traded up 1.2 percent Tuesday. While the analyst said he was impressed by the company's valuation multiple – a gauge of how expensive the company is – MGM seems to be having additional success overseas. MGM China's market cap increased by $2.4 billion in the fourth quarter, while shares of the subsidiary appreciated 26 percent over the same time, according to J.P. Morgan. "If MGM's performance fully reflected its MGM China stake, the stock would have been up an additional $1.50, or 7 percent total, in the fourth quarter vs. its +2 percent," wrote Greff. "This doesn't make sense to us. We think MGM China's recent share appreciation likely reflects a run up into the property's January 2018 opening, which is somewhat common in gaming, but MGM should have moved proportionately." The resort company is also embarking on a number of initiatives to help boost visits to the Las Vegas area, one of the U.S.'s largest gambling spots. The company just acquired the WNBA team from San Antonio and renamed it the Las Vegas Aces. "We want to make sure that we drive traffic to the whole valley because that benefits MGM. We want to bring incremental traffic," said MGM CEO Jim Murren in December. "The goal if you are the home team, as MGM is here, is to drive incremental visitors, not to grab visitors from our competitors, but to bring new visitors to town."

The MGM Macau casino resort, in Macau, China.

Lam Yik Fei | Bloomberg | Getty Images

MGM Resorts represents the gambling sector's most compelling option in the new year, according to J.P. Morgan.

Though the company had a turbulent 2017, analyst Joseph Greff told clients that investors are underestimating MGM and that the company is likely to surpass expectations during earnings.

"We believe MGM represents the gaming sector's most attractive risk/reward for 2018, as it is now the best absolute value play in gaming," wrote Greff on Tuesday. "We continue to like the stock here as we believe investor expectations are reasonably low – we'd say almost negative, but probably more in the 'I don't give a hoot' camp."

The analyst, who has an overweight rating on the casino resort company, encouraged investors to consider adding exposure to MGM.