What Is MGM Resorts’ Fair Value?

-0.06%
Downside
47.21
Market
47.18
Trefis
MGM: MGM Resorts logo
MGM
MGM Resorts

MGM Resorts (NASDAQ: MGM) has performed strongly over the past couple of years, with over 8% annual growth in revenue and a 49% jump in the stock price in between 2015-2017. The strong growth was largely due to robust performance in the domestic market, in addition to the full operational year of MGM National Harbor. As a result, the company’s domestic market gross revenue grew to roughly $9.2 billion (+18% y-o-y)). We are optimistic about MGM’s 2018, primarily due to the healthy environment in Macau – its entry into the Cotai region earlier in the year, as well as a recovery in the Vegas market, should provide long-term growth opportunities.

We have created an interactive dashboard analysis to estimate MGM’s valuation based on its expected revenues for 2018. You can modify the key value drivers to see how they impact the company’s revenues, bottom line, and valuation.

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We have arrived at a $40 price estimate for MGM’s stock, which is nearly 14% ahead of the market price, based on revenue projections of nearly $12 billion for 2018, net income margin of 15%,and a P/E multiple of 13x, which is slightly higher than the figure for 2017, but still lower than the industry average.

We expect the domestic market to remain the driving force led by a recovery in the Vegas market, and its expansion into Massachusetts should provide long-term growth opportunities. In addition, we also expect a strong growth opportunity for MGM in Macau, driven by the tailwinds in the Macau casino market. MGM’s CEO Jim Murren is optimistic about the legalization of sports gambling as well, and we expect this to boost its domestic operations.

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