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In first-quarter 2024, MGM Resorts reported stellar performance, with earnings per share (EPS) beating the Zacks Consensus Estimate by 23.3% and revenues surpassing the same by 4.8%. Year over year, adjusted EPS and revenues rose 23.3% and 13.2%, respectively. Solid contributions from MGM China and luxury resort properties in Las Vegas drove the company’s performance.
MGM has an impressive track record of surpassing earnings expectations, exceeding the consensus mark in each of the trailing four quarters. The average surprise over this period is 27.3%, as shown in the chart below.
Image Source: Zacks Investment Research
Trend in Estimate Revision
The Zacks Consensus Estimate for earnings in the second-reported quarter is pegged at 66 cents per share, indicating an improvement of 11.9% from 59 cents reported in the year-ago quarter. The consensus mark has fallen 1.5% in the past 60 days.
Image Source: Zacks Investment Research
For quarterly revenues, the consensus mark is pegged at nearly $4.2 billion, suggesting an increase of 6% from the year-ago quarter’s figure.
What the Zacks Model Unveils
Our proven model predicts an earnings beat for MGM Resorts this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.
Earnings ESP: MGM Resorts has an Earnings ESP of +15.35%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
MGM’s second-quarter top line is likely to have gained from increased business volume and travel activity at MGM China. This and the focus on omnichannel marketing offerings, hospitality products developments (including new villas, suites, a show produced by Johnny Moe and a world-class museum) and strength in premium mass are likely to have aided the company’s performance in the second quarter. The Zacks Consensus Estimate for second-quarter revenues at MGM China is pegged at $969.1 million compared with $741 million reported in the prior-year quarter.
MGM has been witnessing a strong resurgence in its group business and convention bookings, particularly in Las Vegas. The company's partnership with Marriott has exceeded expectations, contributing to increased room nights and overall business activity. With ADRs pacing ahead for the rest of the year and robust group room bookings, the momentum is likely to have persisted in the second quarter. The Zacks Consensus Estimate for second-quarter revenues at Las Vegas Strip Resorts is pegged at $2.16 billion compared with $2.15 billion reported in the prior-year quarter.
Solid contributions from rooms and food and beverage are likely to have driven the company’s second-quarter top line. The Zacks Consensus Estimate for revenues at rooms and food and beverage is pegged at $841 million and $785 million, suggesting a year-over-year increase of 3.2% and 5.7%, respectively.
The consensus mark for second-quarter casino revenues is pegged at $1.94 billion compared with $1.95 billion reported in the prior-year quarter.
MGM's digital businesses, including BetMGM and LeoVegas, are poised for growth. BetMGM is expected to begin generating significant free cash flow, while LeoVegas is starting to see returns from its investment period. The successful integration of Angstrom and the launch of new products and markets are anticipated to contribute positively to the company's second-quarter performance.
MGM Resorts faces challenges, including potential economic uncertainties, competitive pressures, and regulatory changes. The company is facing challenges in China, with only about 30% recovery in terms of volume of people. The inability to fly over Russia imposes an economic burden, affecting packaging, tours and leisure activities. This issue is expected to affect the company’s second-quarter performance.
MGM functions within fiercely competitive sectors in Las Vegas and Macau. The rise in hotel openings and promotional initiatives intensified competition with players, including Las Vegas Sands Corp. (LVS - Free Report) , Wynn Resorts, Limited (WYNN - Free Report) and Red Rock Resorts, Inc. (RRR - Free Report) .
Despite consecutive improvements, MGM remains vigilant due to the prevailing uncertain macroeconomic conditions. Wage increases and promotional activities in Macau could impact margins.
Price Performance & Valuation
Shares of MGM Resorts have declined 6.4% in the year-to-date period against the Zacks Gaming industry’s 8.7% growth. The downtick in share price stemmed from broader macroeconomic challenges affecting the travel and leisure industry, potential investor concerns about the pace of recovery in certain markets and increased competition within the gaming sector.
YTD Performance
Image Source: Zacks Investment Research
From a valuation perspective, MGM is trading relatively cheap. The company has a forward 12-month price-to-earnings of 13.66X, below the industry average of 28.63X. The company has a Value Score of A.
Image Source: Zacks Investment Research
Investment Considerations
MGM's strategic focus on diversified business segments and strategic growth initiatives make it an appealing investment opportunity. Its turnaround efforts are showing tangible results, positioning it favorably for sustainable, long-term growth.
High occupancy rates and strong ADR growth, bolstered with luxury campus concepts and strategic partnerships (with Marriott), underscore the resilience of its Las Vegas operations. Despite initial challenges, regional properties have shown steady improvement and market share recovery maintaining strong margins. The company's market share and margins in Macau are impressive. Positive developments in visa reforms and increased visitation support sustained growth in this market.
MGM's digital strategy, particularly through BetMGM. Also, LeoVegas, is showing promising signs, with innovative features driving growth in North America and successful expansions into international markets, including the Netherlands.
The company has secured financing for its Japan project. Significant developments like the connectivity bridge between Cosmopolitan, Vdara, and Bellagio in Las Vegas and strategic positioning near major stadiums highlight MGM's appeal as a premier destination for sports and entertainment. The company is exploring opportunities in Abu Dhabi, Dubai, Texas and Thailand, underscoring its commitment to diversify and expand globally.
Conclusion
MGM's strategic growth initiatives further enhance its investment appeal. The company/s diversified business model and strategic growth initiatives, including international expansion and innovative digital strategies, position it for long-term growth. The company’s forward P/E ratio below the industry average underscores the attractiveness of the stock valuation.
However, the company’s year-to-date share decline and general industry challenges warrant a cautious outlook. Despite MGM’s promising growth in its digital sector, the company faces challenges from ongoing competitive pressures and economic volatility. The slow recovery and logistical difficulties in China also remain a concern.
Considering its strong growth potential, existing investors should continue holding MGM Resorts’ shares. Prospective investors are advised not to make any fresh entries ahead of the upcoming earnings results and to wait for further insights on how the company navigates its challenges and leverages its growth opportunities.
Image: Bigstock
MGM Resorts (MGM) Stock Before Q2 Earnings: To Buy or Not to Buy?
MGM Resorts International (MGM - Free Report) is scheduled to report second-quarter 2024 results on Jul 31, 2024, after the closing bell.
In first-quarter 2024, MGM Resorts reported stellar performance, with earnings per share (EPS) beating the Zacks Consensus Estimate by 23.3% and revenues surpassing the same by 4.8%. Year over year, adjusted EPS and revenues rose 23.3% and 13.2%, respectively. Solid contributions from MGM China and luxury resort properties in Las Vegas drove the company’s performance.
MGM has an impressive track record of surpassing earnings expectations, exceeding the consensus mark in each of the trailing four quarters. The average surprise over this period is 27.3%, as shown in the chart below.
Image Source: Zacks Investment Research
Trend in Estimate Revision
The Zacks Consensus Estimate for earnings in the second-reported quarter is pegged at 66 cents per share, indicating an improvement of 11.9% from 59 cents reported in the year-ago quarter. The consensus mark has fallen 1.5% in the past 60 days.
Image Source: Zacks Investment Research
For quarterly revenues, the consensus mark is pegged at nearly $4.2 billion, suggesting an increase of 6% from the year-ago quarter’s figure.
What the Zacks Model Unveils
Our proven model predicts an earnings beat for MGM Resorts this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.
Earnings ESP: MGM Resorts has an Earnings ESP of +15.35%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: The company carries a Zacks Rank #3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors Influencing Q2 Performance
MGM’s second-quarter top line is likely to have gained from increased business volume and travel activity at MGM China. This and the focus on omnichannel marketing offerings, hospitality products developments (including new villas, suites, a show produced by Johnny Moe and a world-class museum) and strength in premium mass are likely to have aided the company’s performance in the second quarter. The Zacks Consensus Estimate for second-quarter revenues at MGM China is pegged at $969.1 million compared with $741 million reported in the prior-year quarter.
MGM has been witnessing a strong resurgence in its group business and convention bookings, particularly in Las Vegas. The company's partnership with Marriott has exceeded expectations, contributing to increased room nights and overall business activity. With ADRs pacing ahead for the rest of the year and robust group room bookings, the momentum is likely to have persisted in the second quarter. The Zacks Consensus Estimate for second-quarter revenues at Las Vegas Strip Resorts is pegged at $2.16 billion compared with $2.15 billion reported in the prior-year quarter.
Solid contributions from rooms and food and beverage are likely to have driven the company’s second-quarter top line. The Zacks Consensus Estimate for revenues at rooms and food and beverage is pegged at $841 million and $785 million, suggesting a year-over-year increase of 3.2% and 5.7%, respectively.
The consensus mark for second-quarter casino revenues is pegged at $1.94 billion compared with $1.95 billion reported in the prior-year quarter.
MGM's digital businesses, including BetMGM and LeoVegas, are poised for growth. BetMGM is expected to begin generating significant free cash flow, while LeoVegas is starting to see returns from its investment period. The successful integration of Angstrom and the launch of new products and markets are anticipated to contribute positively to the company's second-quarter performance.
MGM Resorts faces challenges, including potential economic uncertainties, competitive pressures, and regulatory changes. The company is facing challenges in China, with only about 30% recovery in terms of volume of people. The inability to fly over Russia imposes an economic burden, affecting packaging, tours and leisure activities. This issue is expected to affect the company’s second-quarter performance.
MGM functions within fiercely competitive sectors in Las Vegas and Macau. The rise in hotel openings and promotional initiatives intensified competition with players, including Las Vegas Sands Corp. (LVS - Free Report) , Wynn Resorts, Limited (WYNN - Free Report) and Red Rock Resorts, Inc. (RRR - Free Report) .
Despite consecutive improvements, MGM remains vigilant due to the prevailing uncertain macroeconomic conditions. Wage increases and promotional activities in Macau could impact margins.
Price Performance & Valuation
Shares of MGM Resorts have declined 6.4% in the year-to-date period against the Zacks Gaming industry’s 8.7% growth. The downtick in share price stemmed from broader macroeconomic challenges affecting the travel and leisure industry, potential investor concerns about the pace of recovery in certain markets and increased competition within the gaming sector.
YTD Performance
Image Source: Zacks Investment Research
From a valuation perspective, MGM is trading relatively cheap. The company has a forward 12-month price-to-earnings of 13.66X, below the industry average of 28.63X. The company has a Value Score of A.
Image Source: Zacks Investment Research
Investment Considerations
MGM's strategic focus on diversified business segments and strategic growth initiatives make it an appealing investment opportunity. Its turnaround efforts are showing tangible results, positioning it favorably for sustainable, long-term growth.
High occupancy rates and strong ADR growth, bolstered with luxury campus concepts and strategic partnerships (with Marriott), underscore the resilience of its Las Vegas operations. Despite initial challenges, regional properties have shown steady improvement and market share recovery maintaining strong margins. The company's market share and margins in Macau are impressive. Positive developments in visa reforms and increased visitation support sustained growth in this market.
MGM's digital strategy, particularly through BetMGM. Also, LeoVegas, is showing promising signs, with innovative features driving growth in North America and successful expansions into international markets, including the Netherlands.
The company has secured financing for its Japan project. Significant developments like the connectivity bridge between Cosmopolitan, Vdara, and Bellagio in Las Vegas and strategic positioning near major stadiums highlight MGM's appeal as a premier destination for sports and entertainment. The company is exploring opportunities in Abu Dhabi, Dubai, Texas and Thailand, underscoring its commitment to diversify and expand globally.
Conclusion
MGM's strategic growth initiatives further enhance its investment appeal. The company/s diversified business model and strategic growth initiatives, including international expansion and innovative digital strategies, position it for long-term growth. The company’s forward P/E ratio below the industry average underscores the attractiveness of the stock valuation.
However, the company’s year-to-date share decline and general industry challenges warrant a cautious outlook. Despite MGM’s promising growth in its digital sector, the company faces challenges from ongoing competitive pressures and economic volatility. The slow recovery and logistical difficulties in China also remain a concern.
Considering its strong growth potential, existing investors should continue holding MGM Resorts’ shares. Prospective investors are advised not to make any fresh entries ahead of the upcoming earnings results and to wait for further insights on how the company navigates its challenges and leverages its growth opportunities.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.