What 2017 Holds for MGM: Businesses Set To Grow in 2017
The Las Vegas Strip was the only major casino market to show positive growth in 2016, which has resulted in great success for MGM Resorts International (NASDAQ: MGM), given that about 75% of MGM’s total revenues comes from its Las Vegas Strip operations. MGM’s performance in the Las Vegas market has been phenomenal in the last few years and we expect this trend to continue in 2017. Additionally, the total number of events in MGM’s U.S. casinos in 2017 will be about five times that in 2016, which is a clear indication of increased visitations in U.S. casinos in the near term. We believe that MGM is likely to gain from increased convention attendance, airline capacity and domestic gaming in the region, given that no new casinos are coming in Las Vegas Strip until 2019. MGM revenues will also be boosted by its new casino MGM National Harbor which started its operations in December 2016.
Although Macau contributed just about 25% to MGM’s overall revenues in 2016, MGM remains very optimistic on this market due to the recent improvement in region’s GGR (Gross Gaming Revenue). Also, MGM will be opening its new casino on the Cotai Strip by mid-2017. We believe that Macau visitations, which increased in the later phase of 2016, will continue to display momentum and MGM’s revenues from the region may actually go up in 2017.
MGM posted a $139 million expense from its NV Energy Exit plan, by which it has withdrawn from Nevada utility supply agreement to purchase power on the open market.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. MGM also improved the operating efficiency of its Macau operations, which resulted in about 25% EBITDA growth from the region. These steps are likely to further increase company’s EBITDA margin, which has been increasing for the past six consecutive quarters.
- 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?
New Casinos In The U.S. And Macau To Fuel Further Growth
MGM National Harbor construction opened on December 8th, 2016 outside Washington D.C. in Price George’s County. This will add to company’s revenue stream and, if this casino performs better than expected, investors may reward MGM. MGM Cotai, which will open by mid-2017 is also likely to swing MGM’s valuation upwards due to improved market conditions in Macau.
Japan Presents Bigger Opportunity
Almost all the big casino companies were keeping an eye on Japanese government’s decision to legalize casino gambling in the country. Japan finally cleared the bill to legalize casinos on December 14th, 2016. LVS and MGM have also announced a decision to invest about $10 billion each if Japan chooses to legalize casinos. The region is the next bright spot for the big casino companies. Also, as the Japanese market is not at all penetrated, we believe that return on investment for the companies are likely to be high enough over the long term to justify these huge investments. With the Tokyo Olympics scheduled for 2020, the optimism for higher ROI projects has doubled among the casino companies. MGM’s management met Japanese businesses in October 2016 to discuss the opportunities in Japan and announced a potential investment of about $9.5 billion. However, MGM will invest via a publicly traded real estate investment trust if it wins casino license from the Japanese government. Other casino operators such as Genting, Melco crown, and Hard Rock are also in the race for getting the casino license in Japan.
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.
View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap