We maintain our long-term Outperform recommendation on MGM Resorts International (MGM). We are optimistic on the company’s strong brand value, continued turnaround in its business, international expansion and various domestic ventures.
Why the Reiteration?
We see the company’s strong brand image as one of its key growth drivers. It is one of the most sought-after casino-resort operators along with Las Vegas Sands Corp. (LVS) and Wynn Resorts Ltd. (WYNN) and has operations both in the U.S. and Macau.
We also remain enthusiastic about MGM Resorts’ return to profitability since the first quarter of 2013. Carrying on the momentum of the first quarter of 2013, this casino-resort operator put up a strong performance in almost all of its categories in the second quarter of 2013.
MGM Resorts’ adjusted earnings of 4 cents per share in second quarter 2013 beat the Zacks Consensus Estimate of a penny and the prior-year quarter loss of 12 cents per share. The better-than-expected bottom-line performance can be attributed to an improved top line. Improving business in both Las Vegas and China will help it sustain this turnaround. Visitation in the Las Vegas market remains strong, ensuring a steady recovery from the damage caused due to the recession and we expect MGM Resorts to capitalize the potential in full.
The company’s convention bookings for the rest of 2013 appear to be strong, implying an improvement in room revenues across the board. Looking forward to the third quarter, management expects a strong convention calendar and solid retail bookings to increase RevPAR by 3%, higher than the first two quarters of 2013.
MGM Resorts is well-poised to benefit from international and domestic expansion. It is progressing well with its casino-hotel development project in Cotai in Macau and seeks to expand further in Asia. In the domestic arena, it is expected to come up with an outdoor retail and restaurant park in Las Vegas.
The company is also considering expansion opportunities in some major locations like Toronto, Canada and Western Massachusetts, Md. This geographical diversification protects the company from regional downturns. Further, the legalization of online gambling in some U.S. states is likely to benefit MGM over the longer term.
MGM currently has a Zacks Rank #2 (Buy). Another player in the casino industry, which looks equally attractive at current levels, is Monarch Casino & Resort Inc. (MCRI) with a Zacks Rank #2.
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