What Is Driving Our Price Estimate Of $34 For MGM Resorts?

by Trefis Team
MGM Resorts International
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MGM Resorts (NYSE: MGM) witnessed a sharp decline in its Macau VIP gaming revenues during the first quarter – a trend that hurt the top line of all major casino companies over the period. However, MGM’s U.S. operations are responsible for most of its revenues as opposed to the significantly larger contribution Macau has on the revenues for peers Wynn Resorts and Las Vegas Sands. Keeping this in mind, we believe that MGM’s shares are considerably undervalued. Per Trefis estimates, shares of MGM Resorts have a fair value of $34, which is 20% ahead of the current market price.

Below we take a look at the key drivers behind our price estimate across various geographies. You can view our interactive dashboard on How Has MGM Fared In Recent Quarters, And What’s The Outlook For Full-Year 2019? to modify our forecasts and observe the impact on the company’s share price. Additionally, you can find more of our Consumer Discretionary sector data here.

A Quick Look at MGM Resorts Revenue Sources

MGM reported $11.7 billion in Total Revenues for full-year 2018. This included four revenue streams:

  • Casino: $5.7 billion in FY2018 (49% of Total Revenues). This segment includes income from regulated gambling activities at the company’s properties. MGM China, Regional Operations and Las Vegas properties contribute 39%, 36% and 25% of the casino revenues, respectively.
  • Rooms: $2.2 billion in FY2018 (19% of Total Revenues). This segment includes income from visitors/tourists who lodge in the company’s properties. Las Vegas and Regional properties contribute 80% and 14% of the room revenues, respectively.
  • Food and Beverage: $1.9 billion in FY2018 (17% of Total Revenues). This segment includes income from restaurants at the company’s properties.
  • Entertainment and Retail: $1.4 billion in FY2018 (12% of Total Revenues). This segment includes income from retail stores and live performances at the company’s properties.

Las Vegas Strip Resorts

  • MGM reported $5.7 billion of net revenues from its Las Vegas Strip properties in 2018. These revenues have been fairly stable over the last couple of years.
  • MGM’s Las Vegas properties derive 75% of their revenues from non-Casino activity, with revenue from rooms contributing 41% of total revenues for this segment. Over coming years, we expect room revenues to retain their share and grow at modest rates.
  • In Q1, MGM Las Vegas properties observed a 17% drop in casino revenues primarily due to lower table games drop and slot handle. We believe the declines were temporary due to weak consumer sentiments for the period. For the full year, we expect casino revenues to increase by a moderate 2% compared to 2018 due to the combination of a slowdown in Vegas and increasing competition from other casino destinations.

Regional Operations

  • The company began reporting this division separately from Las Vegas Strip properties in 2018. Interestingly, casino revenues from Regional Operations command a share of 36% across all MGM properties.
  • This segment reported a strong performance in the first quarter primarily due to the opening of MGM Springfield and the acquisition of Empire State Casino.
  • Casino revenues contribute 70% to this segment’s top line and we expect it to grow in the mid-teen range for the full year.

MGM China

  • MGM’s Macau operations have benefited over recent quarters from the opening of MGM Cotai last February. With the addition of Cotai, MGM realized a four-fold increase in the number of its guestrooms and gaming slots in Macau.
  • Casino revenues command a 90% share of MGM’s Chinese operations and have been observing strong growth over the last two years. However, we expect the casino revenues to grow at a single-digit rate for the full year, primarily due to headwinds in Macau’s VIP gaming segment.

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