What’s been a brutal year for growth stocks, it’s not surprising the consumer discretionary sector — the home of casino equities — is flailing. But for investors looking for actionable investing ideas, Citi analysts Scott Chronert and Sameer Samana are backing Las Vegas Sands (NYSE:LVS) and MGM Resorts International (NYSE:MGM). The two analysts recently recommended Sands and MGM to investors with “Buy” ratings and $115 price targets and “Buy” ratings and $61 price targets, respectively. They noted that while they still believe valuation declines at the hands of the Federal Reserve’s aggressive interest rate hike earlier this year aren’t justified, market expectations—and not fundamentals—matter going forward.
MGM and Sands are great for consumer cyclical ideas
Citi analysts screened the S&P 1500 Index for companies they rate ‘buy’ or ‘sell’ across all of the 11 global industry classification standard (GICS) sectors. Within consumer discretionary, they’re positive on nine stocks, including Las Vegas Sands and MGM. Those are the only gaming stocks in that group. No gaming stocks are found among the trio of consumer cyclical stocks Citi is bearish on. In any case, Citi’s positive tone on the Bellagio and Marina Bay Sands operators is notable, but that’s even more true when considering the bank is forecasting increasing probability of a recession in the first half of 2023. A recession will almost assuredly crimp consumer spending, potentially pinching gaming stocks in the process.
MGM, Sands Quality Traits
The Mandalay Bay and Parisian Macau operators have mixed quality traits. Both, as is the case with most of the casino industry, carry sizable debt loads and are not investment-grade. Sands hasn’t restored its dividend nor has it repurchased its own stock since the onset of the coronavirus pandemic. While MGM’s annual payout equals a measly one cent, the casino giant has been a dedicated buyer of its shares over the past few quarters, significantly reducing stocks outstanding. That is a quality trait. Both operators share a quality trait: Strong cash hoards. At the end of Q2, LVS had $6.46 billion in cash on hand while MGM $5.78 billion in cash as of June 30th.