MGM Resorts climbs on JPMorgan upgrade citing attractive valuations and Las Vegas reopening optimism

• MGM shares rose as much as 5% on Tuesday after JPMorgan upgraded the company to an overweight rating.
• JPMorgan bullish turn from neutral follows a recent drop in MGM's shares and improved prospects for domestic casinos.
• The investment bank also raised its year-end price target to $47, implying an upside of more than 20%.

MGM Resorts shares climbed as much as 5% on Tuesday after JPMorgan outlined its newly bullish view on its shares, saying a price pullback and reinvigorated activity in Las Vegas warranted a ratings upgrade to overweight.

The investment bank raised the rating from neutral and lifted its 2021 year-end price target to $47 from $45, which implies a more than 20% upside from Monday's close.

MGM landed the upgrade in the wake of major easings of COVID-19 related restrictions in Nevada which, in turn, led the company on Monday to say employees verified with the coronavirus vaccine are able to work without wearing masks.

In outlining reasons for the upgrade, JPMorgan said a roughly $2.5 billion drop in MGM's market capitalization over the last month as shares fell by 11% is "providing an opportunity to buy with fundamentals continuing to inflect positively," wrote equity analyst Joseph Greff. At the same time, business has been ramping up at MGM's domestic casinos, particularly in Las Vegas.

MGM's stock has more than doubled over the past 12 months after sliding early in 2020 because the pandemic forced the temporary closure of casinos and other venues to curb the spread of COVID-19.

"Volumes, particularly, on the weekend, began to see an improvement on the Las Vegas Strip in mid to late February," and "momentum … has continued through April," across demographics, said JPMorgan in Tuesday's note. The Strip's core customer, aged 55 years and old, generated 40% higher revenue in March than in February, the investment bank said.

MGM's new mask policy for vaccinated employees came after the Nevada Gaming Control Board last week granted a waiver to the company allowing 100% occupancy and no social distancing at its gaming floors. MGM's properties include Bellagio Resort & Casino, Aria Resort & Casino, and MGM Grand Hotel & Casino.

"Looking ahead, the removal of all capacity constraint requirements this week is a positive as it allows additional seats at table games, slots, rooms, restaurants, and other amenities," JPMorgan said. It also expects the re-introduction of nongaming amenities to add to MGM's earnings before interest, taxes, depreciation, and amortization.