MGM Resorts International saw investors grow more cautious on July 7 when Goldman Sachs started covering the casino giant with a negative outlook. The brokerage tagged the stock with a “sell” rating and set a $34 price target, pointing to a potential 10% drop from its current price.
MGM Faces Pressure as Goldman Sachs Cites Debt, Spending Plans, and Vegas Slowdown
Goldman Sachs’ investors note, with analyst Lizzy Dove at the helm, highlighted a few financial troubles that might put a damper on MGM’s upcoming results. The bank mentioned the company’s hefty rent bills and big spending promises tied to growth plans for its Japan project, which will not kick off until after 2030. This, along with an already sky-high debt-to-equity ratio, has sparked worries about the company’s ability to keep up strong free cash flow, a key measure for giving money back to shareholders.
Dove pointed out that MGM’s heavy reliance on Las Vegas makes it vulnerable to increased risks given today’s shaky economy. Although the company still dominates the Las Vegas Strip as its biggest operator, a downward trend in gross gaming revenue (GGR) in the city has set off warning bells. Some experts link this slump to unpredictable trade rules affecting foreign tourism, while others think that higher costs in Las Vegas have pushed out many middle-class visitors.
In the report, Goldman Sachs stressed that, while MGM’s strong presence in Las Vegas could be a plus under different conditions, the current situation makes the stock risky. The bank described MGM as the most affected among its gaming companies by broader economic shifts because of its large lease and capital commitments.
MGM Balances Asset Options and Expansion Plans While Analysts Remain Divided
Even though MGM does not own most of its properties, after selling MGM Growth Properties to VICI Properties and Blackstone for $17.2 billion in 2022, the company still has assets it could sell. Earlier reports hinted that MGM was looking to sell operating rights for some regional casinos in Massachusetts and Ohio, but no deals have been confirmed yet.
Looking at recent results, MGM’s earnings per share of $0.69 in the first quarter beat expectations, though revenue fell short of predictions. Casino earnings got a boost from higher win rates, but a decline in hotel revenue due to cheaper room rates hurt overall performance in Las Vegas.
Other analysts do not agree. Some companies keep an optimistic outlook, pointing out MGM’s efforts to cut costs and its plans to grow in New York and Osaka. However, others, like CFRA, have lowered the stock rating to “hold,” because of short-term issues. As the stock price dropped about 1.5% on July 7, people who invest money are watching to see how MGM handles this tricky money situation.