MGM is being cautious, but could it lose to Wynn and LVS?
Casinos in Macau are looking for ways to diversify their business as VIP gaming has been hit hard by the corruption crackdown by Chinese government and economic slowdown of China. MGM Resorts International’s (NYSE: MGM) new casino in Macau, which was expected to open on Cotai strip in 2016, is likely to be delayed till 2017. This puts the company behind its competitors Las Vegas Sands (NYSE: LVS) and Wynn Resorts (NASDAQ: WYNN) which have announced the opening of their casinos on Cotai strip in Q3’16. This may have negative effect on MGM’s share price as it could lose its potential customers to LVS and Wynn in near term.
MGM will report its Q2’16 earnings on August 4th before the market opens. We expect its earnings to decline slightly year on year as a result of continued weakness in Macau market, which declined by more than 8% in Q2’16. However, we expect the company to perform better sequentially, as the decline in Macau gaming industry has slowed in the last few months. On top of this, its competitors saw increased volume in Q2’16 owing to the start of summer vacation. Despite this silver lining, we believe MGM resorts is likely to see negative growth as Las Vegas market, which constitutes more than 60% of MGM’s overall revenues, shrank in Q2’16. This could be partially attributed to Floyd Mayweather and Manny Pacquiao fight and the Rock in Rio music festival in May 2015.
- A Strong Vegas Business And Recovery In Macau Will Drive MGM’s Q2 Results
- What’s Happening With MGM Resorts Stock?
- Up 16% Over The Past Month, What’s Next For MGM Stock?
- With A Strong Vegas Business And A Possible Recovery In Macau, What’s Next For MGM Stock?
- What’s Next For MGM Resorts After A Strong Q2?
- What’s Happening With MGM Resorts Stock?
Delay in MGM China could affect the company’s market share
MGM delayed its Cotai strip casino project MGM China until 2017 due to Macau’s struggling casino business. However, its competitors LVS and WYNN have announced the Q3’16 opening of their new casinos, The Parisian and Wynn Palace. Both are targeted to premium mass market gaming with capacity of more than 250 tables. Due to the shift to mass market gaming from VIP gaming following corruption crackdown by Macau government, casino operators in China are looking for ways to diversify their casino business in order to minimize risks. We believe that MGM may lose its market share in 2016 due to opening of new casinos on Cotai strip.
Weakness in Macau’s casino industry to weigh on MGM’s revenue growth
The Macau market continued to decline in Q2’16 but there are some positive signals from the industry, The decline has slowed down and both LVS and WYNN witnessed an increase in gaming volumes in June 2016. We expect the current downturn in the casino industry to continue for the next few quarters as Chinese economy has not shown any clear signs of recovery. We currently estimate $23 price estimate for MGM Resorts, which we will update after 2nd quarter earnings announcement.
For more information, please refer to our complete analysis for MGM Resorts International
See More at Trefis | View Interactive Institutional Research (Powered by Trefis)