MGM Q4’16 Earnings: Solid Results Backed By Domestic Operations

+14.91%
Upside
44.12
Market
50.70
Trefis
MGM: MGM Resorts logo
MGM
MGM Resorts

MGM Resorts International (NYSE: MGM) reported its Q4’16 earnings on Thursday, February 16th. The casino company’s strong run continued, driven by strength in its domestic casinos. New openings and acquisitions, including MGM National Harbor and Borgata hotels, also helped. We expect MGM to continue to grow in the coming quarters as MGM Cotai is scheduled to open in the 2nd half of 2017. We estimate that the Cotai project has the potential to add around $500 billion in 2017. We also expect margins to increase due to MGM’s NV Energy exit plan and other cost-cutting measures in Macau. The recent improvement in Macau’s gross gaming revenues will also boost the company’s revenues in the coming months. We are currently reviewing our price estimate of MGM in light of the recent earnings.

Domestic Resorts Doing Well

Most major global casino operators witnessed heavy losses in 2015, a trend which continued in the first half of 2016 primarily due to a corruption crackdown by Macau government and the slowdown in China’s economy. MGM, on the other hand, was shielded from this due to its higher reliance on U.S. casinos. Las Vegas remained stable in 2016, which helped MGM’s domestic resorts grow their revenues and cash flows by 4% and 17%, respectively, for full year 2016. MGM’s Bellagio and The Mirage saw their revenues jump nearly 8% and 4% respectively, and MGM Grand Detroit and Gold Strike had record cash flows in 2016.

Relevant Articles
  1. A Strong Vegas Business And Recovery In Macau Will Drive MGM’s Q2 Results
  2. What’s Happening With MGM Resorts Stock?
  3. Up 16% Over The Past Month, What’s Next For MGM Stock?
  4. With A Strong Vegas Business And A Possible Recovery In Macau, What’s Next For MGM Stock?
  5. What’s Next For MGM Resorts After A Strong Q2?
  6. What’s Happening With MGM Resorts Stock?

The Las Vegas casino market is likely to continue its strong performance in the coming quarters, as no new casinos are coming in the region for the next three years. In the 2nd half of 2016, MGM’s RevPAR was up 6.8%, and margins were up 320 basis points, which was above any other hotel chain’s RevPAR growth. We expect MGM to gain momentum in its hotel revenues driven by increased casino events and the partnership of MGM and Microsoft in the region starting this year.

New Openings And Acquisitions To Maintain Stable Revenues

MGM completed the acquisition of Boyd Gaming Corporation’s interest in the Borgata Hotel Casino and Spa in Q3’16 which added about $348 million to its revenues. This is a significant addition to the company’s domestic revenues and is likely to contribute nearly 13% to MGM’s domestic revenues in 2017. MGM also showed its intention of offering other amenities at Borgata such as M-Life, On December 8 2016, MGM also opened its new casino in Maryland, MGM National Harbor, which averaged nearly 22,000 daily visitors since its opening. We expect this to add nearly 8% to company’s domestic revenues and about 5% to MGM’s U.S. EBITDA in 2017. These helped MGM increase its revenues and EBITDA by 9% and 22%, respectively.

MGM’s other recently opened attractions in Las Vegas such as T-Mobile Arena and The Park Theater have been performing exceptionally. MGM also made residency partnerships with Bruno Mars, Ricky Martin and Cher, who will perform in MGM’s Park Theater during 2017. This could further boost company’s earnings in the coming quarters.

MGM delayed the opening of its new casino in Cotai strip project for the 2nd half of 2017, which was previously expected to open in the first half of 2017. This is not likely to have a significant impact on MGM’s China operations, as the Macau market has already started to improve with an increase in the last 5 months’ gross gaming revenues.

NV Exit Plan and MGM’s Cost Cutting Measures Will Drive Margins

MGM posted a $139 million expense from its NV Energy Exit plan, whereby it has withdrawn from its 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. As a result, MGM’s domestic same-store margins increased by 340 basis points year-over-year. MGM is also improving the operating efficiency of its Macau operations. These steps are likely to further increase the company’s EBITDA margin, which has been increasing for the past seven consecutive quarters.

See 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

More Trefis Research