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Will Vegas Continue to Drive MGM Resorts' (MGM) Growth?

Zacks Equity Research

On Aug 22, we issued an updated research report on MGM Resorts International (MGM).

On Aug 5, MGM Resorts posted mixed second quarter 2014 results wherein earnings beat the Zacks Consensus Estimate while revenues missed the same. MGM Resorts’ second-quarter 2014 adjusted earnings of $0.21 per share were up significantly year over year, owing to improved performance in Las Vegas, its domestic operations.

Total revenue also increased 4% year over year to $2.58 billon driven by an increase in revenues from Las Vegas operations. EBITDA margin increased 90 basis points (bps) due to increased contribution from the high-margin main floor business.

Though tourism in Las Vegas has not yet reached pre-recession levels, it is on its way to recovery. In fact, Las Vegas is on track to break its annual visitation record. MGM Resorts is expected to witness increased occupancy and better pricing in the domestic markets, given its expansion efforts.

Through the remainder of 2014, the company expects the Las Vegas business to continue to improve driven by strong convention calendar and the completion of several capital initiatives on the Las Vegas Strip.

Meanwhile, MGM Resorts derives a solid share of its revenues from Macau, the largest gaming destination in the world. However, performance in Macau was not as strong in the second quarter as it had been in the past few quarters. In fact, Macau revenues were weaker than revenues in the Las Vegas region due to a slowdown in gambling in Macau. The slowdown can be attributed to the fact that high-stake gamblers are curtailing spending amid a cooling Chinese economy.

Also, the nationwide crackdown on corruption in China has compelled Macau officials to impose restrictions on VIP gamblers in order to stop billions of dollars from being siphoned off illegally from mainland China to Macau. This also impacted the company’s performance in Macau, especially the VIP business.

Despite concerns about sustained economic growth in China, MGM Resorts expects the Macau market to continue to grow as a result of a large and growing Asian middle class population and infrastructure improvements. These are expected to facilitate convenient travel to and within Macau.

Other Stocks to Consider

Investors interested in the gaming industry may consider stocks like 500.com Limited (WBAI), Churchill Downs Inc. (CHDN) and Isle of Capri Casinos, Inc. (ISLE). While 500.com Limited sports a Zacks Rank #1 (Strong Buy), Churchill Downs and Isle of Capri Casinos carry a Zacks Rank #2.

Read the Full Research Report on MGM
Read the Full Research Report on CHDN
Read the Full Research Report on ISLE
Read the Full Research Report on WBAI

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