MGM Resorts International (NYSE:MGM) owns and operates casino resorts that feature hotel, dining, and entertainment amenities in addition to gaming. The majority of MGM’s properties are located in Nevada with a few others in Mississippi and Michigan. Its Las Vegas strip operating properties include well-known names like Bellagio, MGM Grand and Mandalay Bay. MGM competes with other prominent gaming companies like Wynn Resorts (NASDAQ:WYNN), Las Vegas Sands (NYSE:LVS), Boyd Gaming (NYSE:BYD) and Harrah’s.
MGM also has a 50% stake in four other properties in Nevada, Illinois and Macau. In Macau, it operates through a joint venture with Pansy Ho, daughter of Stanley Ho. Stanley Ho is the Chairman of SJM holdings, which operates 20 of 33 casinos in Macau.
Our price estimate for MGM Resorts International is $12.88, about 10-15% below market price.
Geographically Concentrated Operations
MGM derives a significant portion of its revenues from the U.S. Outside the U.S., it has only one joint venture in Macau. The recent economic recession adversely ruptured its revenue growth. Its revenues fell from $7.7 billion in 2007 to $6.01 billion in 2010, a decline of 22% approximately. Its competitors also witnessed a decline in Las Vegas revenues but the overall effect was mitigated by greater exposure to gaming revenue growth in Macau.
We believe geographically concentrated operations pose a significant risk to MGM. The huge debt burden of $12 billion has curtailed MGM’s future expansion plans by imposing covenants which limit annual capital expenditures. This debt burden could be a hurdle for MGM if it wants to diversify operations geographically in the future.