How Did MGM Resorts Perform In Q1?

MGM Resorts (NASDAQ: MGM) reported decent first quarter results, with both revenue and earnings coming in line with consensus estimates. Revenues in the quarter came in about 4% higher than the year ago period, driven mainly by the robust performance of its Macau resorts, while earnings jumped by about 6%. Despite this, the stock price has dipped about 9%, dampened by the soft performance of its Vegas resorts. The company expects to see some pressure in its Vegas operations in Q2, driven by ongoing transformation of the Monte Carlo casino, cancellation of a major boxing fight, and additional time required to recover at Mandalay Bay. Further, the sooner than expected completion of its Massachusetts resort, coupled with several citywide conventions, should boost the domestic revenue in the second half of the year. In addition, we are optimistic about MGM’s 2018, primarily due to the healthy environment in Macau – its entry into the Cotai region earlier this year.

The company’s stock is now trading at around $32, which is well below our price estimate of $40. We have created an interactive dashboard elaborating on our valuation process. Please click on the link to adjust drivers and arrive at your own price estimate.

For 2018, MGM remains optimistic about the demand both in the domestic and Macau market. The company expects the domestic resorts to grow mid-to-high single digits in the second half of 2018, driven by several citywide conventions and recovery in the Vegas market. Further, the sooner than expected opening of MGM Springfield, its Massachusetts resort, should boost the Q4 revenue and provide for significant medium term growth. However, MGM expects to see some near term pressure in the Monte Carlo casino due to the undergoing transformation, which should likely impact company’s margins. We expect the domestic market to remain the driving force led by the improved outlook of the U.S. economy, recovery in the Vegas market – owing to recent tax cuts and higher customer spending – and its expansion into Massachusetts. 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 is optimistic about the legalization of sports gambling as well, and we expect this to boost its domestic operations.

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