MGM Stock Attractively Valued Amid Diller Support, Signs of Strip Stability

Shares of MGM Resorts International (NYSE: MGM) trade around $42.80, or roughly 11% below the $48.30 per share takeover floated by Barry Diller’s People Inc. (NASDAQ: IAC) three months ago, but an analyst believes the casino offers value at these levels.

In a new report to clients, CBRE Equity Research analyst John DeCree acknowledges that with MGM trading well below the takeover price, it’s understandable investors have “skepticism around a potential transaction actually getting done.” However, he cites improving trends on the Las Vegas Strip, where MGM is the largest operator, as part of the valuation case for the shares.

It’s been about three months since People pitched an $18 billion takeover bid for MGM. Over that time, neither party has overtly commented on the state of affairs, but the gaming company did form a special committee to evaluate the acquisition proposal.

Diller Remains Supportive of MGM Stock

Diller’s media company is MGM’s largest shareholder, controlling about 26% of the shares outstanding.  On People’s second-quarter earnings conference call earlier this month, the media mogul told analysts he didn’t have any news aside from acknowledging that talks with MGM are ongoing, adding that “whether it works or not, is speculative.”

He did, however, reiterate a clear commitment to MGM stock, indicating it’s highly possible People acquires more shares in the casino giant.

That could put a floor under a stock that’s off nearly 7% over the past month.

“This should put a solid bid on MGM shares,” adds DeCree.

Diller in Pole Position to Acquire MGM

On Wall Street, the prevailing wisdom is that Diller’s offer is too low, particularly based on the multiple pertaining to the Fertitta Entertainment Inc. (FEI) proposal to acquire Caesars Entertainment (NASDAQ: CZR). Some analysts believe that the Caesars takeover implies MGM is worth $55 to $60 a share.

In the investment community, the other consensus perspective is that while MGM controls a cadre of compelling assets — both brick-and-mortar and digital — the likelihood of another bidder besting Diller’s offer is low.

Some analysts have speculated that the pool of potential bidders is likely confined to private equity companies who are likely to either sit things out or participate by owning MGM stock, not unveiling bids of their own.