Why MGM Stock Price Rose by 30% In The Last Six Months
MGM Resorts International’s (NASDAQ: MGM) stock price has increased by more than 30% over the last six months. Although investors were skeptical about MGM’s performance in the beginning of 2016, the company has been able to avert a revenue decline despite the weakness in the casino industry. MGM’s greater exposure to Las Vegas, which has done relatively better than the other major casino markets in 2016, gave MGM a competitive advantage over its industry peers. Additionally, MGM improved its operating margin through various means. including cost-cutting measures, increased operating efficiency, and its NV Energy exit plan. Initially in the year, MGM’s Las Vegas operations helped it to avert declining revenues in Macau, but the momentum continued throughout the year later due to the improvement in Macau casino in the second half of 2016.
MGM’s Reliance On Las Vegas Was a Blessing In Disguise
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About 75% of MGM’s overall revenues came from its Las Vegas operations in the first nine months of 2016. In the last five years, major casino operators invested heavily in the Macau gaming industry and were heavily reliant on the region. MGM, however, relied more on the Las Vegas market, which came in as a blessing in disguise for MGM. The Las Vegas casino industry has remained steady this year, while Macau and Singapore each declined nearly 7.5% in the first 9 months of 2016. MGM’s Las Vegas casinos have benefited from increased convention attendance and increased visitation from Chinese VIP gamblers. Additionally, MGM’s acquisition of Boyd Gaming Corporation’s interest in the Borgata Hotel Casino and Spa is likely to add to its growing revenues in the coming quarters. In the first nine months of 2016, MGM’s operating income increased by 80% and is likely to go up with MGM’s NV Energy exit plan, under which MGM has withdrawn from Nevada utility supply agreement to purchase power on the open market. This is likely to provide complete energy independence and opportunity for more competitive pricing in the coming quarters.
On the other hand, Macau market has also shown signs of recovery since it grew by 14.4% in November. Although Macau operations constituted just 25% to MGM’s overall revenues, MGM investors have shown greater optimism from improved industry landscape as MGM is scheduled to open its new casino in Cotai strip, late in 2017. If Macau industry recovers from the downturn in the region in the next few quarters, MGM will be in the position to get the full advantage from its new casino in the region.
Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis of MGM Resorts International.
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