Here's Why Investors Should Retain MGM Resorts (MGM) Stock
MGM Resorts International MGM will likely benefit from the solid Sports betting and iGaming prospects, international expansion and strong Las Vegas market. Also, its focus on the LeoVegas acquisition bodes well. However, the decline in visitation from pre-pandemic levels is a concern.
Let us discuss the factors that highlight why investors should retain the stock for now.
Factors Driving Growth
Sports betting and iGaming continue to be a major growth driver for the company. To this end, BetMGM continues to gain market share. As of March 2023, BetMGM achieved a market share of 28% in the iGaming and 17% in the U.S. sports betting space. During the first quarter, net gaming revenues from BetMGM came in at $476 million, up 76% from 2022 levels. Attributes such as robust player economics and a successful bonus optimization strategy added to the positives. Considering the positive market momentum and its unique and unparalleled online and offline offerings, the company is optimistic about long-term growth, with revenue expectations of $1.8-$2 billion in 2023. The company is confident about the improved design and functionality of the BetMGM app launch (of a single wallet) and omnichannel growth prospects.
The company emphasizes on international expansion to drive growth. To this end, MGM Resorts made progress related to development plans in Japan and Dubai. It is working on its plans to expand its footprint in New York. The company is currently working through the RFA process and plans to submit the official application in summer 2023. The total spending expectation for its New York expansion is approximately $2 billion (including licensing fee). Going forward, the company intends to invest more than $2 billion into its properties to boost customer experiences and services. Also, the initiative is likely to support the needed technology platform and advanced analytics to better engage and service its guests and drive market share in its principal markets.
The company is benefiting from a healthy demand for leisure time, loosened travel restrictions and significant contributions from the Las Vegas market. During the first quarter of 2023, Las Vegas Strip Resorts' net income came in at $2,176.2 million, up 31% year over year. The positive was brought on by an increase in business volume, travel and the opening of The Cosmopolitan. During the quarter, net revenues from regional operations reached $945.8 million, up 6% from prior-year quarter’s levels. The uptick was primarily driven by an increase in non-gaming business volume. MGM remains bullish on its domestic business outlook.
The company also emphasized on the completion of the LeoVegas acquisition. The initiative supports the company’s expansion in international markets and online gaming and paves a path to drive its omnichannel strategy and generate incremental earnings between brick-and-mortar and online channels. On May 1, 2023, MGM internationally announced the first major investment by its subsidiary, LeoVegas, which entered into an agreement to acquire the majority of a game developer, Push Gaming. This investment will help the company expand its digital business on an international scale.
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In the past year, shares of MGM Resorts have gained 46.3% compared with the industry’s growth of 45.5%.
Concerns
Although the company resumed operations in most of its properties, traffic is still below pre-pandemic levels. In spite of sequential improvements, the company is cautious about the ongoing uncertain macroeconomic environment. Also, a rise in expenses is a headwind. Per our model, expenses for rooms, casino and food and beverage in 2023 are likely to increase 9.4%, 30.8% and 10.9%, respectively, on a year-over-year basis.
Zacks Rank & Key Picks
MGM Resorts currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Consumer Discretionary sector are as follows:
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The Zacks Consensus Estimate for Royal Caribbean Cruises’ 2023 sales and EPS indicates a rise of 48.7% and 162.9%, respectively, from the year-ago period’s levels.
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OneSpaWorld Holdings Limited OSW currently carries a Zacks Rank #2 (Buy). OSW has a trailing four-quarter earnings surprise of 65.8%, on average. Shares of OSW have increased 57.8% in the past year.
The Zacks Consensus Estimate for OSW’s 2023 sales and EPS indicates a rise of 33.9% and 89.3%, respectively, from the year-ago period’s levels.
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