MGM Resorts International saw its stock price drop Thursday following an announcement by Morgan Stanley that it was downgrading the company. Analysts with the financial firm had to revise their outlook on the casino operator due to a softened market and the anticipated lower revenue results MGM is expected to announce when it releases its second-quarter earnings report next week.
Analyst Thomas Allen, who covers the gaming and leisure markets for Morgan Stanley, downgraded his MGM rating from “outperform” to “equal-weight” (essentially the same as “hold” used by other analysts) and lowered his price target slightly from $32 to $31. He explained that concerns over baccarat operations and a slowdown at certain MGM properties forced the updated position and stated, “While some of the 2Q issues are transitory, we are concerned that weaker Vegas baccarat trends and lower returns on new properties will continue.”
The analyst points out that he expects baccarat revenue at MGM casinos to have dropped about 55% in May. However, MGM isn’t the only operator to be suffering from baccarat blues. According to Las Vegas revenue data, baccarat players have been extremely lucky lately and the Strip properties, in general, have all seen revenue dips in the card game.
When MGM releases its financials on July 25, most analysts predict a second-quarter earnings rate of $0.25 per share. This would represent a decline of around 4% over the same period last year, but the company’s revenue could compensate for the drop. Revenue is expected to be around $3.24 billion, which is 13.3% higher than it was for the second quarter of 2018.
Allen points out that, across the board, virtually all of MGM’s properties have slipped. MGM Springfield, for example, saw a 10.5% decrease in its gross gaming revenue (GGR), which was the second-worst it has been since the venue opened last August. Regarding the company’s Macau segment, he added that channel checks suggest that MGM suffered from low hold and MGM Cotai is ramping more slowly than expected.”
All industry analysts have given MGM a “buy” or “hold” rating. Where Allen differs from the rest is in the target price. With his $31 target, he is slightly less optimistic than other analysts who have put the price at $33 on average. As of the close of market trading yesterday, the price was $28.76.