Can Macau Drive Growth For MGM Resorts In Q2?

MGM Resorts (NASDAQ: MGM) is expected to publish its Q2 2018 results on August 2, reporting on what is likely to be a mixed quarter. Consensus market estimates call for the company to report revenue of slightly under $3 billion and earnings of 30 cents per share on an adjusted basis. Macau contributes slightly under 20% of its overall revenue, and has reported strong revenue growth in recent years, largely driven by robust growth in the mass market segment since the recovery of the Macau gaming industry. This trend continued in the first quarter of 2018, with net revenues growing at almost 4% year-on-year to over $2.8 billion. Macau revenue was up 25% year-on-year to just under $600 million. However, the company expects to see some pressure in its Vegas operations in Q2, driven by ongoing transformation of the Monte Carlo (rebranded as Park MGM in May 2018) casino, cancellation of a major boxing fight, and additional time required to recover at Mandalay Bay. The remodeling of Park MGM and NoMad floors, and the opening of Eataly later this year, should improve gaming and non-gaming services in the domestic market. Further, MGM’s recently signed deals with Ladbrokes and Boyd Gaming give the company a strong foothold in the sports betting market and should provide decent long-term growth opportunities. Below, we take a look at what to expect when the company reports earnings.

We have a $39 price estimate for MGM Resorts, which is higher than the current market price. The charts have been made using our new, interactive platform. You can click here to modify the different driver assumptions, and gauge their impact on the earnings and price per share metrics.

Factors That May Impact Future Performance

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. 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 also expect a strong growth opportunity for MGM in Macau, driven by robust VIP and Mass market growth in the Macau casino market. Further, we expect the legalization of sports gambling to boost its domestic operations.

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