Back to top

Image: Bigstock

MGM Resorts Poised for Growth, Macau a Drag on Revenues

Read MoreHide Full Article

On Aug 25, we issued an updated research report on MGM Resorts International (MGM - Free Report) .

The casino operator posted mixed second-quarter 2016 results on Aug 4, wherein earnings beat the Zacks Consensus Estimate while revenues missed the same.

In fact, MGM Resorts’ revenues have been sluggish over the past few quarters due to weakness in Macau operations. Gambling revenues in Macau were dismal throughout 2015 and continued to be so in the first half of 2016 as high-stake gamblers are curtailing spending amid a cooling Chinese economy. The region has also been struggling due to the anti-graft corruption drive, which lowered footfall at the casinos.

However, the company expects Macau traffic trends to improve over the long term aided by government efforts to boost tourism in the region.

Notably, MGM China, of which the company owns 51%, is undertaking initiatives 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.

Meanwhile, MGM Resorts’ Las Vegas business is doing well on the back of the ongoing economic recovery and growing tourism in the region and is expected to continue to grow over the long term. This should drive incremental revenues at the company’s properties in the region.

Moreover, the company’s profit growth plan that began in Aug 2015 has begun reaping benefits as is evident from EBITDA growth in the first half of 2016. Further, MGM Resorts’ utilization of various types of technology to maximize revenues and efficiency in operations also bodes well.

However, MGM Resorts faces stiff competitive 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 - Free Report) . Wynn Resorts Ltd. (WYNN - Free Report) also recently opened a full-scale integrated resort, Wynn Palace, on the Cotai Strip.

MGM Resorts currently has a Zacks Rank #3 (Hold). A better-ranked stock in this sector is Monarch Casino & Resort Inc. (MCRI - Free Report) , sporting a Zacks Rank #1 (Strong Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Published in