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Here's Why Investors Should Retain MGM Resorts (MGM) for Now
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MGM Resorts International (MGM - Free Report) is likely to benefit from sports betting prospects, solid Las Vegas performance and license development projects. Also, its focus on the single account and wallet feature bodes well. However, elevated expenses are a concern.
Let us discuss the factors that highlight why investors should retain this Zacks Rank #3 (Hold) stock for now.
Factors Driving Growth
Advancements in Digital Strategy: MGM made significant strides in advancing its digital strategy, which has become a cornerstone of its growth plans. The company reported profitability for BetMGM in the second quarter, largely driven by the iGaming business, which generates around $400 million annually. The success underscores the strength of MGM’s digital offerings, particularly with the recent acquisitions of LeoVegas and Push Gaming. The acquisitions have bolstered MGM's technology ownership and enhanced its proprietary content, giving it a competitive edge in the digital space.
The introduction of a Live Dealer product in partnership with Playtech and the acquisition of Tipico’s U.S. sports betting platform enriched MGM’s digital portfolio. With the rollout of a single account and wallet feature in Nevada, MGM is poised to enhance customer engagement and solidify its omnichannel strategy.
Las Vegas Segment Drives Steady Growth: MGM’s Las Vegas unit continues to be a significant contributor to its overall performance. In the second quarter, the company reported a 3% year-over-year increase in net revenues, driven by higher room rates and improved occupancy levels. The strategic alliance with Marriott has proven to be effective, with more than 410,000 room nights booked during the quarter.
Going forward, the company is optimistic about the Las Vegas segment’s performance for the remainder of 2024, particularly in terms of room rates and Group bookings. Its focus on luxury and high-end offerings is expected to drive growth.
Solid Macau Operations: MGM China reported impressive results, with net revenues surging 37% year over year to $1.02 billion. The upside can be attributed to the ramp-up of operations following the removal of COVID-19-related travel and entry restrictions in first-quarter 2023. MGM China casino revenues were up 33% year over year to $891 million. MGM China's adjusted property earnings before interest, taxes, depreciation, amortization and restructuring or rent costs (EBITDAR) amounted to $294 million compared with 209 million reported in the prior-year quarter.
Strategic Initiatives: MGM’s global expansion efforts are also gaining traction. It is confident about its limited license development projects in New York, Japan and the United Arab Emirates, which are expected to contribute to future free cash flow. Additionally, discussions regarding potential ventures in Thailand demonstrate MGM’s continued interest in broadening its geographic presence and diversifying revenue streams.
The company’s long-term strategy centers on leveraging growth opportunities while maintaining a shareholder-friendly approach. Management projected a mid-teens compound annual growth rate in free cash flow per share through 2028, highlighting the company’s confidence in its trajectory.
Concerns
Image Source: Zacks Investment Research
Shares of MGM Resorts have lost 10.2% year to date against the industry’s 7.6% growth. Inflationary pressures primarily led to the downside.
The company has been witnessing elevated operating expenses for some time. During the second quarter, the company reported increased expenses concerning labor, casino, room and food and beverage. During the second quarter, general and administrative expenses were $1.21 billion compared with $1.14 billion reported in the prior-year period. The company is cautious of cost overruns, which are likely to impact the bottom line to some extent in 2024. It expects operating expenses to grow about low to mid-single-digit in 2024.
Royal Caribbean Cruises Ltd. (RCL - Free Report) currently sports a Zacks Rank of 1 (Strong Buy). RCL has a trailing four-quarter earnings surprise of 18.5%, on average. The stock has rallied 62.6% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for RCL’s 2024 sales and earnings per share (EPS) calls for growth of 18.1% and 69.7%, respectively, from the year-ago levels.
DoubleDown Interactive Co., Ltd. (DDI - Free Report) currently flaunts a Zacks Rank of 1. DDI has a trailing four-quarter earnings surprise of 22.1%, on average. The stock has surged 70.2% in the past year.
The Zacks Consensus Estimate for DDI’s 2024 sales and EPS indicates an increase of 12.6% and 15.8%, respectively, from the year-ago levels.
Monarch Casino & Resort, Inc. (MCRI - Free Report) currently sports a Zacks Rank #1. MCRI has a trailing four-quarter negative earnings surprise of 3.5%, on average. The stock has increased 13.1% in the past year.
The Zacks Consensus Estimate for MCRI’s 2024 sales and EPS indicates an increase of 2.3% and 10%, respectively, from the year-ago levels.
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Here's Why Investors Should Retain MGM Resorts (MGM) for Now
MGM Resorts International (MGM - Free Report) is likely to benefit from sports betting prospects, solid Las Vegas performance and license development projects. Also, its focus on the single account and wallet feature bodes well. However, elevated expenses are a concern.
Let us discuss the factors that highlight why investors should retain this Zacks Rank #3 (Hold) stock for now.
Factors Driving Growth
Advancements in Digital Strategy: MGM made significant strides in advancing its digital strategy, which has become a cornerstone of its growth plans. The company reported profitability for BetMGM in the second quarter, largely driven by the iGaming business, which generates around $400 million annually. The success underscores the strength of MGM’s digital offerings, particularly with the recent acquisitions of LeoVegas and Push Gaming. The acquisitions have bolstered MGM's technology ownership and enhanced its proprietary content, giving it a competitive edge in the digital space.
The introduction of a Live Dealer product in partnership with Playtech and the acquisition of Tipico’s U.S. sports betting platform enriched MGM’s digital portfolio. With the rollout of a single account and wallet feature in Nevada, MGM is poised to enhance customer engagement and solidify its omnichannel strategy.
Las Vegas Segment Drives Steady Growth: MGM’s Las Vegas unit continues to be a significant contributor to its overall performance. In the second quarter, the company reported a 3% year-over-year increase in net revenues, driven by higher room rates and improved occupancy levels. The strategic alliance with Marriott has proven to be effective, with more than 410,000 room nights booked during the quarter.
Going forward, the company is optimistic about the Las Vegas segment’s performance for the remainder of 2024, particularly in terms of room rates and Group bookings. Its focus on luxury and high-end offerings is expected to drive growth.
Solid Macau Operations: MGM China reported impressive results, with net revenues surging 37% year over year to $1.02 billion. The upside can be attributed to the ramp-up of operations following the removal of COVID-19-related travel and entry restrictions in first-quarter 2023. MGM China casino revenues were up 33% year over year to $891 million. MGM China's adjusted property earnings before interest, taxes, depreciation, amortization and restructuring or rent costs (EBITDAR) amounted to $294 million compared with 209 million reported in the prior-year quarter.
Strategic Initiatives: MGM’s global expansion efforts are also gaining traction. It is confident about its limited license development projects in New York, Japan and the United Arab Emirates, which are expected to contribute to future free cash flow. Additionally, discussions regarding potential ventures in Thailand demonstrate MGM’s continued interest in broadening its geographic presence and diversifying revenue streams.
The company’s long-term strategy centers on leveraging growth opportunities while maintaining a shareholder-friendly approach. Management projected a mid-teens compound annual growth rate in free cash flow per share through 2028, highlighting the company’s confidence in its trajectory.
Concerns
Image Source: Zacks Investment Research
Shares of MGM Resorts have lost 10.2% year to date against the industry’s 7.6% growth. Inflationary pressures primarily led to the downside.
The company has been witnessing elevated operating expenses for some time. During the second quarter, the company reported increased expenses concerning labor, casino, room and food and beverage. During the second quarter, general and administrative expenses were $1.21 billion compared with $1.14 billion reported in the prior-year period. The company is cautious of cost overruns, which are likely to impact the bottom line to some extent in 2024. It expects operating expenses to grow about low to mid-single-digit in 2024.
Key Picks
Some better-ranked stocks in the Zacks Consumer Discretionary sector are as follows:
Royal Caribbean Cruises Ltd. (RCL - Free Report) currently sports a Zacks Rank of 1 (Strong Buy). RCL has a trailing four-quarter earnings surprise of 18.5%, on average. The stock has rallied 62.6% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for RCL’s 2024 sales and earnings per share (EPS) calls for growth of 18.1% and 69.7%, respectively, from the year-ago levels.
DoubleDown Interactive Co., Ltd. (DDI - Free Report) currently flaunts a Zacks Rank of 1. DDI has a trailing four-quarter earnings surprise of 22.1%, on average. The stock has surged 70.2% in the past year.
The Zacks Consensus Estimate for DDI’s 2024 sales and EPS indicates an increase of 12.6% and 15.8%, respectively, from the year-ago levels.
Monarch Casino & Resort, Inc. (MCRI - Free Report) currently sports a Zacks Rank #1. MCRI has a trailing four-quarter negative earnings surprise of 3.5%, on average. The stock has increased 13.1% in the past year.
The Zacks Consensus Estimate for MCRI’s 2024 sales and EPS indicates an increase of 2.3% and 10%, respectively, from the year-ago levels.