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MGM Resorts Poised for Long-Term Growth on Macau Revival


On Jan 13, we issued an updated research report on MGM Resorts International MGM.

Domestic Ventures

MGM Resorts’ Las Vegas business is doing well on the back of the ongoing economic recovery and growing tourism in the region. It is expected to continue growing over the long term driven by a strong convention calendar and the completion of several capital initiatives on the Las Vegas Strip.

The recent opening of MGM National Harbor, a casino resort, also bodes well. Another casino resort in Western Massachusetts is set to be developed on roughly 14 acres of land in downtown Springfield, MA and is scheduled to complete construction in late 2018. Both these resorts include a number of gaming as well as non-gaming amenities.

Thus, as a result of these efforts and openings, the company is expected to witness increased occupancy and better pricing in the domestic markets. This should drive incremental revenues at the company’s properties in the region. Moreover, these projects demonstrate the company’s commitment toward diversifying its business that is not solely meant for gaming.

Macau Revival

Revenues at MGM China have been declining year over year continuously since the second quarter of 2014 with sluggish performance mainly at VIP table games. The downside reflects weak performance in Macau – a key operating region of the company – due to the anti-graft corruption campaign run by the government since May 2014.

However, gross gaming revenues (GGR) marked a turnaround in Aug 2016, after declining for 26 consecutive months. Post that, revenues rose in the subsequent four months, thereby continuing the revival in Macau.

We believe that it will take some time for the company to mark a complete turnaround in Macau as the anti-graft corruption drive undertaken by the Chinese government is still keeping VIP gamblers at bay.

Yet, we are positive on the initiatives undertaken by the company to increase revenues and junket productivity in Macau as it anticipates a positive trend buoyed by upgrades to main gaming floor products and marketing initiatives. Moreover, MGM Cotai’s construction is in the final stages and is expected to boost revenues when it opens in the second quarter of 2017.

Also, the government of China is considering measures to support Macau’s economy in all aspects and introduce favorable policies, which is expected to improve visitation pattern and boost tourism as well as traffic in the region.

Bottom Line

MGM Resorts’ Profit Growth Plan that began in Aug 2015 has begun reaping benefits as is evident from EBITDA growth in 2016. The third-quarter 2016 marked the sixth consecutive quarter of double-digit EBITDA growth at the company. Further, MGM Resorts’ utilization of various types of technology to maximize revenues and efficiency in operations also bodes well.

However, MGM Resorts faces stiff competition in the markets of Las Vegas and Macau due to increased hotel openings and promotional activities.

In fact, the company’s upcoming project in the Cotai Strip is expected to face extreme peer pressure from several Chinese casino operators and the Sands Cotai Central project of Las Vegas Sands Corp. LVS. Wynn Resorts Ltd. WYNN also opened a full-scale integrated resort, Wynn Palace, on the Cotai Strip in Aug 2016.

Nonetheless, we note that MGM Resorts’ shares have outperformed the broader Zacks categorized Gaming industry over the past three months. While the stock surged 11.2%, the broader industry gained 1.7% during the same time period.

Upward estimate revisions further reflect optimism regarding the stock’s prospects. The Zacks Consensus Estimate for 2016 and 2017 earnings moved north by nearly 1% and 2%, respectively, over the last 60 days.

Given the improving gaming trends in Macau, the stock should perform well in the quarters ahead.

MGM Resorts currently has a Zacks Rank #2 (Buy). Another favorably ranked stock in this sector is Melco Crown Entertainment Limited MPEL, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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