MGM Resorts International’s MGM strong brand presence, long-term prospects of the Macau business and non-gaming initiatives are likely to drive incremental growth. However, intense competition from other casinos, as well as alternative providers of entertainment, hurts the company’s profitability. Further, high debt burden, characterizing the casino business, is creating headwinds.
Shares of MGM Resorts have lost 19.7% in the past year compared with the industry’s decline of 32.4%.
Strong Brand, Domestic Ventures & Digital Initiatives Bode Well
MGM Resorts, one of the leading companies in the gaming and lodging industry, is well poised to grow on high brand awareness. The company’s superior business model, extensive non-gaming revenue opportunities, high-quality assets and attractive property locations are the primary growth drivers. In the past few years, the company has taken various initiatives to align every recognized brand into one global entertainment brand. This resulted in a disciplined business model with a unified approach..
The company’s properties are well diversified within the United States. Particularly, its Las Vegas business is likely to perform well on the back of an improving economic scenario and increased tourism numbers. Meanwhile, the company continues to make investments wherever it sees an opportunity. It is in a solid position with The Park, The Plaza, T-Mobile and New York-New York. These are likely to continue drawing more people to Las Vegas. The company believes that concerts and events hold the key to increasing visitation and profits, and with a strong lineup of the same coming up, traffic in the region is expected to increase.
MGM Resorts utilizes various types of technology to maximize revenues and operational efficiency. The company continues to adopt ways that drive bookings. MGM Resorts has an M life Rewards program for its customers at domestic resorts. M life provides access to rewards, privileges and members-only events. Moreover, the company’s website mlife.com continues to generate substantial revenues.
Recently, MGM Resorts partnered with Boyd Gaming BYD to significantly enhance each company's market access and customer base throughout the United States. Under the partnership, the companies initiated opportunities to offer online and mobile gaming platforms —including sports betting, casino gaming and poker.
MGM Resort’s heavy reliance on debt financing remains a concern. As of Sep 30, 2018, cash and cash equivalents were $1.3 billion compared with a much higher long-term debt of $14.7 billion. However, any severe slowdown in future macroeconomic and credit market conditions can affect the company’s ability to pay or refinance its debt.
Moreover, the company is facing increased competition from the likes of Wynn Resorts WYNN. Increased hotel openings and promotional activities made these markets highly competitive. Thus, excess supply, especially in the Macau market, might reduce the company’s market share. Its upcoming projects are expected to face extreme peer pressure from several Chinese casino operators as well as The Parisian Macao and the Sands Cotai Central project of Las Vegas Sands Corp LVS.
MGM Resorts currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank(Strong Buy) stocks here.
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