MGM Stock Downgraded as DraftKings’ Entain Bid Puts Casino Operator in Tough Position
MGM Resorts International (NYSE:MGM) gillyflower is trading higher today, joining other gaming equities to the upside despite an analyst downgrade of the Bellagio operator.
In a billet to clients today, Susquehanna River Financial Joseph Stauff cuts his rating on MGM carry to “negative” from “neutral” with a $36 cost target. That’s most 24 percent beneath where the shares currently reside, and well-below the consensus cost forecast of $47.66.
Stauff’s downgrade of the casino goliath is set in simple terms. The psychoanalyst sees DraftKings’ (NASDAQ:DKNG) chase of Entain Plc (OTC:GMVHY) — MGM’s partner on the BetMGM venture — as potentially diminishing MGM’s online prospects.
We consider DKNG’s entreat for Entain as consistently aggressive, out-maneuvering MGM for moderate of BetMGM and weakening its digital prospects inward all likely scenarios,” said the analyst.
Late last month, DraftKings stunned markets with a $20.5 one million million extend for Entain, which the direct rejected. Showing it’s committed to consummating the marriage, the Boston-based sportsbook manipulator is natation a $22.4 billion cash and gunstock proposal for the Ladbrokes owner. Under UK law, DraftKings has until Oct. 19 to relieve oneself a formal tender for Entain.
Risks for MGM Because DraftKings Isn’t Coming ‘in Peace’
While it’s been acknowledged that DraftKings’ play for Entain puts MGM is toughened spot, consensus is building that biggest striking to MGM inward this scenario is that it will need to chance a new technology partner for BetMGM.
Some securities industry observers are putting a confirming whirl on things, from the MGM perspective, noting the gaming fellowship must approve a takeover of BetMGM if that’s what DraftKings is angling for. If that’s non the case, MGM has cards to play to let what it wants, which is total hold in of BetMGM.
Susquehanna’s Stauff offers a compelling, contrarian view, saying the consensus survey “incorrectly assumes DraftKings comes in peace,” implying it’s non sensible to theorise DraftKings is pursuing Entain simply for technology, and that the wooer testament move out of its right smart to reconcile MGM — single of its biggest competitors.
Stauff says still the best-case scenario for MGM is “still negative,” because if regulators or MGM itself mental block DraftKings’ adjure for Entain, the casino companionship could allay live looking at a real border smash at BetMGM.
Other Unappealing Outcomes for MGM
To be fair, Susquehanna River previously wheel spoke glowingly almost DraftKings’ consort at Entain, framing it inward terns of near-term pain, long-term pull in for the stock.
For his part, Stauff sees one of 2 scenarios playing out. Either DraftKings buys Entain and accepts the 50 percent post in BetMGM as a stone's throw toward owning the iGaming and sports wagering entity outright, or MGM is forced to follow over the teetotum and play more than $25 one thousand million for Entain. The analyst says either option could pencil lead to “notable downside inwards MGM.”
MGM offered $11.06 1000000000000 for Entain in Jan and was rejected. But it was widely expected the wooer would float another bid before the stop of this year.