We upgrade our recommendation on casino-hotel operator MGM Resorts International (MGM) from Neutral to Outperform based on its better-than-expected first-quarter 2013 results and strategic initiatives to spur growth.
Why the Upgrade?
Last month, MGM Resorts’ first-quarter 2013 adjusted earnings of 3 cents per share breezed past the Zacks Consensus Estimate of a loss of 10 cents per share as well as the prior-year quarter loss of 9 cents per share. The bottom line exceeded expectations on the back of an improved top line. Further, the first-quarter results mark MGM Resorts’ return to profitability.
In the first quarter, total revenue grew 3% year over year to $2.4 billon, which also beat the Zacks Consensus Estimate of $2.3 billion. Higher revenues from both Las Vegas and China boosted total revenue in the quarter. Visitation in the Las Vegas market remains strong ensuring a steady recovery from the damage due to the recession five years ago.
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 and Western Massachusetts in Maryland. This geographical diversification protects the company from regional downturns.
Apart from expansion, MGM Resorts is strengthening its loyalty program. This month, it formed a venture with hotelier Hyatt Hotels Corp. (H) to reinvigorate their respective loyalty programs – MGM Resorts’ M life program and Hyatt Gold Passport. Also, MGM’s social gaming site ‘myVEGAS.com’ in association with Play Studios is also expected to drive its business. MGM retains a Zacks Rank #2 (Buy).
Other Stocks to Consider
Some other leisure and gaming industry stocks with a favorable Zacks Rank include Monarch Casino & Resort Inc. (MCRI) and Multimedia Games Inc. (MGAM), both with a Zacks Rank #1 (Strong Buy).
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