Last week, MGM Resorts (NYSE:MGM), Penn National Gaming and Greenwood Racing Inc. filed a proposal to build a waterfront casino resort on the Potomac River in Prince George’s County. MGM’s proposed resort would host 200 tables and 4000 slot machines.  Compared to its peers Las Vegas Sands (NYSE:LVS) and Wynn Resorts (NASDAQ:WYNN), MGM holds majority of its assets in the U.S. and the company continues to eye domestic expansion. The company draws majority of its revenue in the U.S. from activities other than casinos. MGM’s domestic operations were hurt during the recession, but as the growth in gaming picks up and consumer spending increases, the company will benefit from its U.S. operations and the new Maryland project will help in diversification beyond the Las Vegas strip.
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Gambling Picks Up In The U.S.
Earlier this month, the American Gaming Association published 2012 gaming revenues, which grew 5% from $35.64 billion in 2011 to $37.34 billion in 2012.  The Las Vegas strip alone contributed more than $6 billion to total revenues in 2012.  Interestingly, Kansas topped the growing casino revenue with a more than 600% increase between 2011 and 2012, as the number of new casinos opened there in late 2011 and in 2012. The 2012 gaming figures are close to the pre-recession period of 2007, and as consumer spending picks up, best is yet to come for the casino operators in the U.S.
MGM’s Domestic Operations
MGM already supplies more than 40,000 rooms, 1,000 tables and 23,000 slot machines in the U.S., but more than 90% of them operate in the Las Vegas strip.  It may be a good move for the company to expand elsewhere in the U.S. However, as more and more states open up to gaming, there will be an impact on number of visitors in Las Vegas.
The Las Vegas strip contributes the majority of the gaming revenues in the U.S. for all of the major casino operator. Does this mean it’s a bad move for MGM to expand outside Las Vegas?
Not really. MGM in particular derives more than half of its U.S. revenue from non-gaming operations, including hotel, food and beverage, entertainment and other non-gaming amenities.  In 2012, the company’s casino revenues were $2,554 million while non-casino revenues were 4,022 million.  Similar trend can be noticed in the previous years numbers. MGM’s significant convention and meeting facilities allows it to maximize hotel occupancy and customer volumes during off-peak times such as mid-week or during traditionally slower leisure travel periods, which also leads to better labor utilization.  If approved, MGM’s casino in Prince George’s County will be operational by 2016. It will diversify the company’s vast pool of assets in the U.S. and boost its domestic operations.
Our price estimate for MGM Resorts International stands at around $11, implying a discount of over 20% to the market price.Notes: