December 19, 2024
Trade Idea: MGM $33.80 (MGM Resorts International)
Buy February 21st $35 Calls for $1.85
The casino sector has lagged the market throughout 2024. In general, “Losers” get sold at year end to harvest tax losses, however, that supply will lighten up in the new year.
MGM is one of the major players in the space. We’ve played it several times over the last couple of years with good results, but we haven’t had the huge win I think it’s capable of.
The company can be divided up into Las Vegas, Regionals, China and their digital platform, which offers an omni-channel approach to gaming, hospitality and entertainment.
The stock at $10Bn market Cap is cheap.
Consider, that the company’s digital online sports app, BetMGM, is 3rd behind Fandual and Draftkings. For comparison, DKNG is a pure-play trading at $19BN owning 22% of the market share. BetMGM’s share is at 11%, or half of DKNG, yet its valuation is no where near $9.5Bn (with full company at $10Bn).
The Company also has significant future growth drivers including the new Vegas Baseball team, projects in Japan, Dubai, the UAE, New York, and possibly Texas and Thailand.
Management has bought back 40% of its shares over the last 3.5 years. And in August, the Chairmam, CEO and CFO themselves bought $7mm worth of stock at these exact levels.
Keep in mind, the top 11 holders own 40%, IAC (Barry Diller) owns 20%, leaving 40% available to everyone else. This implies that if the sector catches a bid, MGM could make a strong move higher due to lack of supply.
Earnings are due in early February.
I like the MGM February 21st $35 Calls for $1.85. The Target Stock Price is $42.
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