On Nov 20, 2014, we issued an updated research report on MGM Resorts International (MGM).
After posting profits consistently since the beginning of 2013, MGM Resorts posted a loss of 2 cents per share on Oct 30 that compared unfavorably with the Zacks Consensus Estimate of earnings of 6 cents and also the year-ago earnings of 2 cents. The loss was due to a decline in casino revenues in the domestic market and lower number of VIP gamblers in the Macau market. Also, a decline in margins owing to investments in Delano at Mandalay Bay and the Strip frontage at Monte Carlo led to the loss.
However, total revenue of $2.49 billion increased 1% year over year and marginally beat the Zacks Consensus Estimate of $2.48 billion. The marginal upside reflects an increase in revenues from mass market gamblers in China. Adjusted property EBITDA was $570 million, up 2% year over year, as an increase in revenues was partially offset by an increase in expenses.
MGM Resorts derives a solid share of its revenues from Macau, the largest gaming destination in the world. However, the company has not been able to perform well in the region over the past two quarters owing to gambling slowdown in the region. The slowdown can be attributed to the fact that high-stake gamblers are curtailing spending amid a cooling Chinese economy.
Also, the nationwide crackdown on corruption in China has compelled Macau officials to impose restrictions on VIP gamblers in order to stop billions of dollars from being siphoned off illegally from mainland China to Macau. This also impacted the company’s performance in Macau, especially the VIP business.
Despite concerns about sustained economic growth in China, MGM Resorts expects the Macau market to continue to grow as a result of a large and growing Asian middle class population and infrastructure improvements.
Meanwhile, though tourism in Las Vegas (another key region for the company) has not yet reached pre-recession levels, it is on its way to recovery. In fact, Las Vegas is on track to break its annual visitation record. MGM Resorts is expected to witness increased occupancy and better pricing in the domestic market , given its expansion efforts. The company expects the Las Vegas business to continue to improve in the near-term and over the long-term, driven completion of several capital initiatives on the Las Vegas Strip. Going forward, an increase in visitation in the Las Vegas market and improving trends at its urban complex, CityCenter should bode well for domestic growth.
MGM Resorts presently has a Zacks Rank #3 (Hold).
Other Stocks to Consider
Some better-ranked stocks in the gaming industry sector include Monarch Casino & Resort Inc. (MCRI) and Penn National Gaming Inc. (PENN). Both of these stocks carry a Zacks Rank #2 (Buy). Investors can also consider Time Warner Inc. (TWX) a stock from the Consumer Discretionary sector that also carries a Zacks Rank #2.
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