Shares of MGM Resorts International (NYSE:MGM) are up more than 16% over the past month, prompting some analysts to opine the stock is building second half momentum.
In a report out today, Citi previews its top thematic ideas for the back half of 2022. The bank highlights stocks with leverage to variou themes, including artificial intelligence, automation, internet-based business models, emerging markets consumers, high brand recognition and net zero exposure. MGM is one of 30 names on the list.
From here, we look under the hood of these baskets and provide a list of Citi Buy rated stocks that have high/medium exposure to what we believe are the most attractive themes within the S&P 500,” strategist Scott Chronert wrote. “Stocks with negative expected earnings growth are removed, with the remaining stocks ranked by expected total return.”
MGM appears on Citi’s “Thematic 30” list due to its emerging consumer exposure. In fact, the casino operator scores 65.5%, trailing only General Motors (NYSE:GM). The Bellagio operator is the only gaming equity on the list.
MGM Can Offset International Risk
Citi’s call that MGM is a play on emerging market consumer trends is credible as the operator owns 56% of MGM China.
That means exposure to Macau, which has been a vexing proposition for casino operators this year amid China’s ongoing crackdown on COVID-19 cases. As such, MGM China is resisting significant investments in the special administrative region (SAR) for the time being. Fortunately, more so than the other US-based firms operating there, MGM has outlets for offsetting China risk.
“Las Vegas Strip results were solid, and it seems like demand and spending patterns have shown no signs of slowing through July,” wrote Stifel analyst Steven Wieczynski in a recent note on MGM.
He rates the stock “hold” with a $42 price target. The Excalibur operator has the largest footprint on the Strip.
Other Favorable MGM Factors
While Citi praised MGM as an emerging consumer play, the company also checks the boxes of enviable brand recognition and some internet exposure via its BetMGM unit.
In fact, the iGaming and online sports wagering business is a potential second half catalyst for MGM shares in its own right. That could prove to be the case if the operator keeps a lid on promotional spending through football season and if it capitalizes on the recent legalization of sports wagering in Massachusetts.
“Putting it all together, we think management has painted a compelling strategic vision consisting of their asset optimization, online gambling, and proposed integrated resort development initiatives,” concludes Wieczynski.
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