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Here's Why Investors Should Retain MGM Resorts (MGM) Stock
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MGM Resorts International (MGM - Free Report) is likely to benefit from solid demand in the Las Vegas market, sports-betting expansion and cost-saving initiatives. This along with a focus on asset-light strategy bodes well. However, a decline in traffic from pre-pandemic levels is a concern.
Let’s delve deeper.
Factors Driving Growth
Shares of MGM Resorts have gained 41.2% this year against the industry’s 9.7% decline. The company is benefiting from pent-up consumer demand, high domestic casino spend and sports-betting expansion. During third-quarter 2021, the company announced that 15 of its 18 domestic properties witnessed solid margin records. In Las Vegas, the company’s revenues are back to normal owing to leisure and domestic casino customers. Net revenues at Las Vegas Strip Resorts in the third quarter were $1.4 billion, up 187% year over year on account of the easing of operational and capacity restrictions and increase in travel due to leniency in cross-border restrictions. Going forward, the company anticipates the margins to stabilize well above pre-pandemic levels backed by effective marketing and cost-saving initiatives.
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Sports betting and iGaming continue to drive growth following the legalization of sports betting outside Nevada. To this end, BetMGM continues to gain market share. It continues to be a leader in the iGaming space, with the market share reaching 32% in third-quarter 2021. During the quarter, BetMGM launched in three new states — Arizona, South Dakota and Wyoming. Also, it contributed $227 million to third-quarter net revenues, up 17% sequentially. The company stated that 16% of BetMGM's fresh players were from MGM, while 42% of MGM M life sign-ups came from BetMGM. Given the positive momentum in markets along with unique and unparalleled online and off-line offerings, the company is optimistic about long-term growth. MGM Resorts expects 2022 revenues to be more than $1 billion. In the long term, BetMGM’s EBITDA margins are expected to be 30-35%. The company expects to expand BetMGM’s presence to 20 markets by the end of first-quarter 2022.
MGM Resorts is focusing on asset-light strategy. In July 2021, the company announced two separate deals with Infinity World Development Corp and Blackstone. Firstly, MGM Resorts entered into a definitive agreement with Infinity World Development Corp to acquire the remaining 50% stake in its JV — CityCenter Holdings, LLC. Quoted at $2.125 billion, the price reflects an implied valuation of $5.8 billion (based on net debt of $1.5 billion). Post the transaction, MGM Resorts will become the sole owner of the urban complex that includes Aria Resort and Casino as well as Vdara Hotel and Spa. The company entered into an agreement with Blackstone to monetize the Aria and Vdara real estate assets. We believe that the deals will simplify its corporate structure with additional liquidity, helping the company transition into a premier gaming entertainment company.
MGM Resorts has enough liquidity, which will help it survive in the current scenario. The company ended the third quarter with cash and cash equivalents of $5,571 million (as of Sep 30, 2021) compared with $5,626 million as of Jun 30, 2021. It has enough cash to survive the coronavirus pandemic. Its long-term debt at the end of the quarter amounts to $11,619 million compared with $12,575 million as of Jun 30, 2021. Nevertheless, MGM Resorts has no debt maturing prior to 2022 that excludes MGP and MGM China. At the end of third-quarter 2021, the company had a debt-to-capital ratio of 0.5, suggesting that its debt level is manageable.
Concerns
The Gaming industry is currently grappling with the coronavirus pandemic and MGM Resorts isn’t immune to the trend. During third-quarter 2021, the company’s operations in Macau were affected by coronavirus-induced travel restrictions. Gross gaming revenues in the region declined 26% on a sequential basis. Although the company resumed operations in the majority of its properties, traffic is still below pre-pandemic levels. Given the uncertainties related to the crisis, chances of operational restrictions (imposed by governmental authorities), reimposing stay at home orders and travel restrictions cannot be ruled out. A resurgence in coronavirus cases might hurt the company’s performance.
Some better-ranked stocks in the Consumer Discretionary sector include Hilton Grand Vacations Inc. (HGV - Free Report) , Bluegreen Vacations Holding Corporation and Century Casinos, Inc. (CNTY - Free Report) .
Hilton Grand Vacations sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 411.1%, on average. Shares of the company have increased 67.1% so far this year.
The Zacks Consensus Estimate for Hilton Grand Vacations’ current financial year sales and earnings per share (EPS) suggests growth of 189.5% and 158.1%, respectively, from the year-ago period’s levels.
Bluegreen Vacations flaunts a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 695%, on average. Shares of the company have surged 160.2% so far this year.
The Zacks Consensus Estimate for Bluegreen Vacations’ current financial-year sales and EPS indicates a rise of 27.5% and 199.3%, respectively, from the year-ago period’s levels.
Century Casinos carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 758.9%, on average. Shares of the company have increased 90.8% so far this year.
The Zacks Consensus Estimate for Century Casinos’ current financial-year sales and EPS suggests growth of 26.9% and 146.6%, respectively, from the year-ago period’s levels.
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Here's Why Investors Should Retain MGM Resorts (MGM) Stock
MGM Resorts International (MGM - Free Report) is likely to benefit from solid demand in the Las Vegas market, sports-betting expansion and cost-saving initiatives. This along with a focus on asset-light strategy bodes well. However, a decline in traffic from pre-pandemic levels is a concern.
Let’s delve deeper.
Factors Driving Growth
Shares of MGM Resorts have gained 41.2% this year against the industry’s 9.7% decline. The company is benefiting from pent-up consumer demand, high domestic casino spend and sports-betting expansion. During third-quarter 2021, the company announced that 15 of its 18 domestic properties witnessed solid margin records. In Las Vegas, the company’s revenues are back to normal owing to leisure and domestic casino customers. Net revenues at Las Vegas Strip Resorts in the third quarter were $1.4 billion, up 187% year over year on account of the easing of operational and capacity restrictions and increase in travel due to leniency in cross-border restrictions. Going forward, the company anticipates the margins to stabilize well above pre-pandemic levels backed by effective marketing and cost-saving initiatives.
Sports betting and iGaming continue to drive growth following the legalization of sports betting outside Nevada. To this end, BetMGM continues to gain market share. It continues to be a leader in the iGaming space, with the market share reaching 32% in third-quarter 2021. During the quarter, BetMGM launched in three new states — Arizona, South Dakota and Wyoming. Also, it contributed $227 million to third-quarter net revenues, up 17% sequentially. The company stated that 16% of BetMGM's fresh players were from MGM, while 42% of MGM M life sign-ups came from BetMGM. Given the positive momentum in markets along with unique and unparalleled online and off-line offerings, the company is optimistic about long-term growth. MGM Resorts expects 2022 revenues to be more than $1 billion. In the long term, BetMGM’s EBITDA margins are expected to be 30-35%. The company expects to expand BetMGM’s presence to 20 markets by the end of first-quarter 2022.
MGM Resorts is focusing on asset-light strategy. In July 2021, the company announced two separate deals with Infinity World Development Corp and Blackstone. Firstly, MGM Resorts entered into a definitive agreement with Infinity World Development Corp to acquire the remaining 50% stake in its JV — CityCenter Holdings, LLC. Quoted at $2.125 billion, the price reflects an implied valuation of $5.8 billion (based on net debt of $1.5 billion). Post the transaction, MGM Resorts will become the sole owner of the urban complex that includes Aria Resort and Casino as well as Vdara Hotel and Spa. The company entered into an agreement with Blackstone to monetize the Aria and Vdara real estate assets. We believe that the deals will simplify its corporate structure with additional liquidity, helping the company transition into a premier gaming entertainment company.
MGM Resorts has enough liquidity, which will help it survive in the current scenario. The company ended the third quarter with cash and cash equivalents of $5,571 million (as of Sep 30, 2021) compared with $5,626 million as of Jun 30, 2021. It has enough cash to survive the coronavirus pandemic. Its long-term debt at the end of the quarter amounts to $11,619 million compared with $12,575 million as of Jun 30, 2021. Nevertheless, MGM Resorts has no debt maturing prior to 2022 that excludes MGP and MGM China. At the end of third-quarter 2021, the company had a debt-to-capital ratio of 0.5, suggesting that its debt level is manageable.
Concerns
The Gaming industry is currently grappling with the coronavirus pandemic and MGM Resorts isn’t immune to the trend. During third-quarter 2021, the company’s operations in Macau were affected by coronavirus-induced travel restrictions. Gross gaming revenues in the region declined 26% on a sequential basis. Although the company resumed operations in the majority of its properties, traffic is still below pre-pandemic levels. Given the uncertainties related to the crisis, chances of operational restrictions (imposed by governmental authorities), reimposing stay at home orders and travel restrictions cannot be ruled out. A resurgence in coronavirus cases might hurt the company’s performance.
Zacks Rank & Key Picks
MGM Resorts currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the Consumer Discretionary sector include Hilton Grand Vacations Inc. (HGV - Free Report) , Bluegreen Vacations Holding Corporation and Century Casinos, Inc. (CNTY - Free Report) .
Hilton Grand Vacations sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 411.1%, on average. Shares of the company have increased 67.1% so far this year.
The Zacks Consensus Estimate for Hilton Grand Vacations’ current financial year sales and earnings per share (EPS) suggests growth of 189.5% and 158.1%, respectively, from the year-ago period’s levels.
Bluegreen Vacations flaunts a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 695%, on average. Shares of the company have surged 160.2% so far this year.
The Zacks Consensus Estimate for Bluegreen Vacations’ current financial-year sales and EPS indicates a rise of 27.5% and 199.3%, respectively, from the year-ago period’s levels.
Century Casinos carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 758.9%, on average. Shares of the company have increased 90.8% so far this year.
The Zacks Consensus Estimate for Century Casinos’ current financial-year sales and EPS suggests growth of 26.9% and 146.6%, respectively, from the year-ago period’s levels.