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Investment Overview for MGM Resorts International (NYSE:MGM)
Below are key drivers of MGM Resorts value that present opportunities for upside or downside to the current Trefis price estimate for MGM Resorts:
- Average Daily Rates for MGM Hotels:Average Daily Rates for MGM Hotels has declined from $161 to $127 between 2007 and 2011. The decline was accentuated due to the economic recession and consequent decrease in consumer discretionary spending. Besides this, the growth in the Asian gaming industry also accentuated the decline in Average Daily Rates. The growth in the gaming industry of Macau and Singapore adversely affected the gaming industry in Las Vegas. In case, the U.S. economy recovers faster than anticipated and the Las Vegas gaming industry bounces back to its pre-recession levels, we believe there could be a potential upside of 12% to the Trefis price estimate. This is assuming that Average Daily Rates reach the $240 level by the end of the Trefis forecast period. However, a sluggish recovery in the U.S. and higher hotel vacancy rates could pressurize Average Daily Rates and pose a 23% downside to the Trefis price estimate. This scenario would occur if Average Daily Rates remain range bound in the $170 range by the end of the forecast period.
MGM Resorts' Table Games Money Wagers: MGM Resorts' Table Games Money Wagers has declined steeply by 33.9% between 2006 and 2010. In 2011, MGM Resorts' Table Games Money Wagers witnessed a substantial increase of approximately 180% over previous year as the company acquired additional 1% stake in MGM China, bringing the total stake to 51% and started consolidating the results since June 2011. We expect table game wagers to increase moderately in the coming years and cross $22 billion by the end of the forecast period. However, there could be an upside of nearly 6% to the Trefis price estimate if due to higher growth in Macau, it reaches $24 billion by the end of the forecast period. This could be possible due to a swifter economic recovery in the US and impressive growth in Macau. On the other hand, the increasing competition on the strip and Macau could lead to a decline in table game money wagers. Assuming they reach $18 billion by the end of the forecast period, it could pose a 18% downside risk to the Trefis price estimate.
For additional details, select a driver above or select a division from the interactive Trefis split for MGM Resorts at the top of the page.
MGM Resorts International (MGM) is a holding company engaged in gaming, hospitality and entertainment. It primarily owns and operates casino resorts that include gaming, hotel, dining, entertainment, retail and other resort amenities.
MGM owns and operates 15 properties located in Nevada, Mississippi and Michigan, and has 50% investments in four other properties in Nevada and Illinois.
- Its Las Vegas strip operating properties include Bellagio, MGM Grand Las Vegas, Mandalay Bay, The Mirage, Luxor, Excalibur, New York-New York, Monte Carlo and Circus Circus Las Vegas.
- In other parts of Nevada, its operating properties include Circus Circus Reno, Gold Strike and Railroad Pass. These properties are located at Reno and Henderson.
- MGM also has operating properties in other US states: MGM Grand Detroit in Michigan and Beau Rivage and Gold Strike in Mississippi.
- MGM Resorts also has four joint venture investments. It owns a 50% stake in CityCenter, Las Vegas, the Grand Victoria in Illinois and Silver Legacy in Nevada. It also holds a 51% stake in MGM China.
MGM Resorts derives more than 60% of its revenue from non gaming activities, a higher percentage compared to its competitors.
The main competitors include prominent firms in the gaming and casino industry such as Wynn Resorts, Las Vegas Sands, Boyd Gaming, Harrah's Entertainment and others.
Higher proportion of non gaming revenues in revenue mix compared to competitors
- MGM Resorts offers a complete resort experience to its guests, including high quality non-gaming amenities such as food and beverages, entertainment, retail outlets, beauty salons, spas, and shows. The firms dependence on gaming revenues is comparatively lower compared to its competitors. Non gaming revenues do get affected by the growth of gaming revenues as the majority of gaming customers utilize non gaming/ancillary services offered at resorts. However, we believe that the firms non gaming services do attract a large number of convention/show attendees and general tourists, apart from gaming tourists.
Premium brand image
- MGM Resorts is recognized worldwide as a premium brand resort. It has a sophisticated style and offers exquisite luxuries to its customers through its various resort holdings.
Wide presence on the Las Vegas Strip
- The company operates nine operating resorts and one joint venture (CityCenter) on the strip. This provides it with excess capacity in terms of the number of games offered and rooms available. In case the US markets recovers and the Las Vegas gaming industry gets a faster push, we believe that MGM Resorts would be a front runner due to its wider presence across the strip.
Las Vegas gaming market growth slowing down
- The economic recession of 2008-2009 slowed down the growth of the Las Vegas gaming industry. Other factors mentioned below also accentuated the slow down:
- Other US states like Pennsylvania and Delaware recently legalized table games. Similar actions by other states could affect the number of tourists visiting Las Vegas. More than 80% of the tourists visiting Las Vegas are domestic.
- The Las Vegas gaming market has reached a saturation state. Casino operators indulge in intense competition to sustain their margins. Intense competition is affecting the industry margins.
- Excess room capacity hitting the markets is expected to pressurize the margins of the gaming industry by pushing average daily rates down. At the end of 2010, Cosmopolitan added about 3,000 additional rooms.
- Asian tourists prefer Macau to Las Vegas as a result of two things: firstly it offers world class gaming infrastructure since the advent of foreign gaming companies in Macau in 2006, and secondly it is at a nearby location. The decline in the number of Asian tourists would also affect the Las Vegas gaming industry.
Increasing share of Asia casino revenues
- MGM Resorts operations are not geographically diversified. It operates mainly in the US, particularly in Las Vegas. It does have a presence in Macau through its joint venture investment, MGM Macau. However, its presence in Macau is on a smaller scale compared to its competitors.
- Wynn Resorts and Las Vegas Sands have been focusing their efforts on Asia for future growth. Last year, LVS opened Marina Bay Sands at Singapore. The following factors strengthened the trend mentioned above:
- Macau surpassed the Las Vegas Strip as the world’s biggest gambling hub in 2006 after the government allowed the entry of overseas casino operators. Since then, the region has witnessed unprecedented growth. In 2011, the region collected $33.5 billion in gaming revenues, more than five times the gaming revenues collected on the Las Vegas Strip.
- According to a study by PwC, growth in Macau will be fueled by new casinos, and revenues in Macau are expected to more than double during the next five years to $62.2 billion, representing 34% of total global casino revenues in 2015.
- Other upcoming regions within Asia like Singapore also offer immense growth potential for the casino industry.
- A strong Chinese economy with a burgeoning middle class and an increased population of high net worth individuals is helping strengthen Macau's growing gaming industry.
- Macau and Singapore offer world class gaming infrastructure. All major gaming companies like Melco Crown, Wynn Resorts, and Las Vegas Sands have their presence in Macau.
Key infrastructural initiatives underway
The Macau government is reinforcing a series of initiatives in order to drive visitor growth in the region. The gaming industry is a key contributor to Macau's GDP. The government is investing in new transportation links to ease travel for Chinese visitors. According to the Macau Statistics and Census Service Monthly Bulletin of Statistics, approximately 89% of the tourists who visited Macau in 2011 came from mainland China, Hong Kong and Taiwan.
- The Guangzhou-Zhuhai high-speed railway is expected to improve travel time from Guangzhou to Macau to 40 mins, down from the 2+ hours taken by bus. It was partially completed in 2011.
- The Macau Light Rapid Transit will link ferry terminals and key locations. It will have 12 stops on the Macau peninsula, 11 stops on Cotai and Taipa, and will fully integrate different regions within Macau. It should be completed by 2015.
- The Hong Kong-Zhuhai-Macau bridge will connect Hong Kong to Macau, thereby, reducing car travel time from 4 hours to 40 minutes. It is expected to be completed by 2015-2016.
- The Macau International Airport is presently undergoing capacity upgrades. Its capacity will be increased to handle 12 million people per year almost double from the current capacity of 6 million people. It is expected to be completed by 2017.
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Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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